Don’t ignore cards in the era of mobile payments – SBI

The ongoing rollout of Bharat QR and other mobile payment systems could result in some pain for banks as it could make it harder for their card or PoS business to become profitable.

According to an estimate by the State Bank of India, card swipe transactions cost significantly more than Bharat QR and mobile transactions, and banks are already suffering losses from their investment into card infrastructure post demonetization.

It pointed out that the number of point-of-sale (swiping) machines has risen to 28.4 lakh in July this year from 13.8 lakh in Mar last year because of demonetization.

SBI estimates that Indian banks are losing about 64 paise for a debit card transaction of 100 rupees and 1.09 rupee per equivalent credit card transaction, without counting indirect benefits such as lower ATM and branch expenses and the benefits of getting cheap funds from the merchant.

The expenses include about 50 paise worth of paper and ink per transaction and another 50 paise of transaction costs at the bank server.

The capping of bank commission (MDR) at 1% for debit cards by the government has contributed to the situation.

“The MDR on debit cards has been capped by RBI in 2012 at 1%, while there is no fixed MDR on credit card transactions, which varies from cards to cards, based on the type of cards. Needless to say, such revenue is grossly inadequate for banks to support revenue earned and hence a loss,” said SBI in a note.

Without including indirect benefits such as the inflow of merchant cash, there is a net loss of 3,800 cr every year in terms of under-recovery of expenses on PoS machines, it estimated.

The situation could have rectified itself as more and more people started using these PoS machines, but the emergence of non-contact payment methods, particularly Bharat QR, could prevent that from happening.

“In the long-run, the business would be viable, only if the transactions at PoS surpass the ATM transactions,” SBI said.


Bharat QR, launched about six months ago, enables anyone to pay their bills at any shop by opening an app on their phone, scanning the QR code and punching in the amount.

Though slightly less convenient for the customer, it emerges as a cheaper form of payment for the merchant as several costs associated with the swiping method are not present.

For example, the 50 paise spent on ink and paper can be avoided, as can fixed costs of around Rs 600 per PoS machine per month.

SBI, however, said it would be a mistake to ignore the card infrastructure. It pointed out that the people pushing Bharat QR expect all merchants to have, or buy, a smartphone. But for the same amount, the merchant can also buy a PoS machine.

“The problem with Bharat QR code that we expect everybody to have a smart phone, but we must also strive to terminalise 30 million merchants. At the end of the day, there is little difference in cost between a smart phone and a PoS machine. PoS machines could also be given a push by Government and others and made a part of Make in India campaign,” it said.

“We in fact believe the current humongous PoS infrastructure that the banks have developed have to be supported wholeheartedly,” it added.