Visa and MasterCard missed the chance to reach out to millions of customers when the government decided that bank accounts opened under the Pradhan Mantri Jan Dhan Yojana (PMJDY), a financial inclusion programme, would be powered by RuPay, the domestic card issued by the National Payments Corp. of India (NPCI).
Till date, 192.7 million such bank accounts have been opened and cards issued.
Now, card issuers are zeroing in on payments banks.
“Though I cannot name who we are in talks with, I believe it is a fantastic opportunity for payments banks to take payment services much deeper into India," said Ari Sarker, co-president, Asia-Pacific, MasterCard.
However, these overseas card issuers may again have to face the formidable domestic challenger, RuPay.
“We have been talking to all 11 licence winners. We have held several rounds of discussion—in groups and one-on-one as well," said A.P. Hota, CEO and managing director, NPCI.
On 19 August, the Reserve Bank of India (RBI) gave in-principle approval to 11 entities to set up payments banks.
The list includes telco affiliates Airtel M Commerce Services Ltd (from the stable of Bharti Airtel Ltd, which has a customer base of 235.2 million as of September) and Vodafone m-pesa Ltd (part of Vodafone India Ltd, which has a customer base of 188.1 million as of September), and the Department of Posts, which has 155,015 post offices across the country, of which 139,144 are in rural areas.
The other eight licence winners are Aditya Birla Nuvo Ltd, Cholamandalam Distribution Services Ltd, Fino PayTech Ltd, National Securities Depository Ltd, Reliance Industries Ltd, Dilip Shanghvi (founder of Sun Pharmaceuticals Industries Ltd), Vijay Shekhar Sharma (founder of Paytm) and Tech Mahindra Ltd.
According to T.R. Ramachandran, group country manager, India and South Asia, Visa, a tie-up with these entities will help the company reach those customers whom it could not through brick-and-mortar bank branches and through Jan Dhan accounts.
The in-principle approval will be valid for 18 months from the date of issuance, after which the entities will be given formal licences and can start operations, provided they fulfil the conditions stipulated by RBI.
“Our overall vision and strategy is to drive electronic payments across markets; being relevant across segments. Now, in that process, payments banks are absolutely very critical," said Sarker. He added that by January or February, MasterCard will go live with some of the solutions for payments banks.
Though the licence winners are yet to decide who they will partner for card issuance and technology solutions, Hota believes that since the mandate of the licence winners is to increase banking penetration in the country and increase financial inclusion domestically, RuPay is the automatic choice.
He added that payments banks will not be issuing credit cards—the strength of Visa and MasterCard. These entities will provide basic savings, deposit, payment and remittance services to people without access to the formal banking system, such as migrant workers, low-income households and tiny businesses.
They will not be in the business of lending, so that they are shielded from the risks that conventional banks are exposed to.
But according to Sarker, MasterCard can provide various capabilities such as issuer and acquirer processing, mobile-based payment flows, point of sale, among others, through a single interface.
“The timing of our investments in India is very appropriate as we will be able to provide a one-stop shop," added Sarker.
In February, MasterCard invested $250 million to develop two technology hubs, one each in Pune and Vadodara.
Suresh Sethi, business head, Vodafone m-pesa, said the choice of a partner will depend on interoperability and acceptance. “We would want to see a convergence of technological innovations to leverage upon," he said, adding that the idea is to build an ecosystem for customers to work digitally to reduce cost and directionally create a less-cash economy.