The Hindu Business Line : Banking on `point of sale' terminals

THE business of deploying point of sale (POS) terminals - machines placed in retail stores and restaurants to enable credit/debit card payments, is becoming fiercely competitive among banks.

With undercutting being the name of the game, the transaction charge i.e., the charge levied by the terminal deploying bank on the shopkeeper/merchant's revenue from the customer, in the country is said to be one of the lowest in the world.

The POS terminals, now even found at small retail stores, are said to be 75,000 in number across over 100 cities in the country and it is only likely to grow as spending through cards is growing at 30-40 per cent, says Mr Neeraj Swaroop, Head-Retail, HDFC Bank, one of the prominent players in this business.

Domestic manufacturing of POS terminals, which is under way, is to be another boost for the expansion of the market. The Indian version of the machine is expected to cost 30 per cent less than the current imported ones that cost a minimum of Rs 16,000-17,000.

Banks currently vie with one another for pretty much the same merchants, thus leading to little expansion of the market, admit bankers. Said a jeweller with one POS terminal at his side, "I called up my bank to lower their rates, since Bank X is prepared to offer me a terminal at a lower rate.''

The transaction fee, which is a share of the value of the purchase made by a customer, is now as low as 1.2-1.8 per cent of the volume of the transaction from the highs of over 2-2.5 per cent sometime back.

With multiple terminals at the merchant's disposal, the challenge heightens for each bank to increase the card swiping on its machine, for each swipe translates into revenue for the bank.

The transaction fee from this `merchant acquiring business' is broken up as follows: Out of the total fee of 1.4-1.8 per cent, 1.1 per cent goes to the credit/debit card issuing bank, 0.25-0.30 per cent goes to Visa/MasterCard for enabling card payments from the cross-section of banks and whatever remaining goes to the terminal deploying bank.

A merchant will have multiple banks running after him provided he can route over Rs 1 lakh through plastic cards every month for no rentals whatsoever. Five-star hotels and expansive shopping malls are seen as the most attractive, generating a couple of crores every month through plastic cards.

Banks not only look at the singular stream of transaction fees from merchants, but eye cross-selling other services right from current account, savings account, corporate salary account to working capital loans.

With the squeeze on profits, the number of players (about 16 banks as of now) in this game of volumes may reduce, said a bank official in the merchant services department.

There are two models that banks adopt, business of either entirely in-house or the outsourced model.

It is mostly the players with a few thousand terminals in force such as Bank of Baroda, IDBI Bank and Central Bank of India that outsource the same. "On amassing volumes we may adopt the in-house model,'' said a bank official from one of the smaller players.

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Banking on `point of sale' terminals