Mumbai: ICICI Bank Ltd, India’s second largest lender by assets, has shortlisted three companies for a proposed joint venture that would manage its point-of-sale (POS) business, a bank official said.
POS terminals are machines that read credit or debit card information and approve or reject a transaction.
“The bank had received bids from about 25 investors and now the bank has shortlisted three investors. A final decision will be taken in a month’s time,” the official said, who declined to be named as the bidding process is under way.
Looking up: It is not yet clear whether the Reserve Bank of India will allow ICICI to float this joint venture. Ramesh Pathania / Mint
The three companies are Visa Inc., which runs the world’s largest retail payment network, Georgia, US-based Total System Services Inc. and Global Payment Inc., a US-based electronic transaction processing company, the official said.
A spokesperson for ICICI Bank said: “The matter is still in the discussion stage.”
“The technology partner will hold a majority stake in the proposed company, which could be close to 80%,” the bank official quoted first said, adding that the lender’s POS business is valued at close to Rs500 crore.
At least 75% of India’s POS market is controlled by three private sector lenders, ICICI Bank with at least 200,000 terminals, Axis Bank Ltd, which has about 120,000 machines, and HDFC Bank Ltd, which operates about 70,000 terminals.
ICICI Bank has put off a plan to hive off its ATM (automated teller machines) business for now as it is not getting the right valuation, the official said. The bank has the country’s second largest ATM network, with at least 4,000 machines.
“The question of assessing valuations has not risen since we have not proceeded with the sale process itself,’’ the spokesperson said regarding the bank’s ATM business.
The bank’s POS business, which has a sales and business team of about 120 people, will be moved to the joint venture once it becomes operational. “These employees will be mandated to go to the proposed joint venture company,” said the official quoted first.
It is not yet clear whether the Reserve Bank of India will allow ICICI Bank to float this joint venture. The National Payments Corp. of India (NPCI), set up by banks operating in India at the behest of the central bank, is currently developing a domestic payment gateway to process and settle all card transactions conducted in India.
Currently, card transactions performed in India have to be routed through Visa or Mastercard networks, for which banks pay a fee to these companies.
“The National Payments Corp. of India’s payment gateway will rival Visa and Mastercard, (and) this could affect the income of both these payment companies,” A person familiar with the matter said on condition of anonymity. “Hence to be relevant to the Indian market, Visa is pitching hard to win the bid.”
“The bank’s merchant acceptance (POS) business has been not doing very well,” said another ICICI Bank official. “The bank, for the past few years, has been subsidising the losses made in the merchant acceptance business with the gains in the credit card business.”
“However, with the credit environment changing and the income in the credit card business coming under pressure, the bank has decided to hive off its merchant acquisition business,” this official said.
To run a POS business profitably, a bank must charge the merchant—typically the owner of the store—a fee that is greater than 1-1.5% of the total amount of purchase. This fee varies from merchant to merchant depending on the volume of daily business done on a particular machine.
Additionally, the POS terminal must be placed at locations where ticket sizes of transactions are on the higher side. The profitability of a POS business is directly proportional to the number and value of transactions.
“ICICI Bank, to gain market share and become the favoured bank among merchants, charged a fee lower than the administrative cost to run a POS business. This has affected the profitability of the bank’s merchant acceptance business,” said an official of a financial technology company, who declined being identified. His company was one of the bidders for the bank’s POS business but could not make it to the shortlist because his firm’s valuations were lower than the final three.