May 17, 2015
The Reserve Bank earlier this week released the final circular on the relaxation in the requirement of additional factor of authentication (AFA) for small value "card present" transactions for values up to ₹ 2,000/- per transaction across all merchant categories using contactless/NFC (near field communication). According to one of the top 8 banks (Axis Bank), 60% of all credit and debit card transactions in the country are for less than INR 2000 (~$32). This percentage is atleast 50% in most cases (banks) based on our research. In fact, the INR 2000 (~$32) is a small amount and some banks have requested to raise the limit to 2.5 times of that.
Let's say hypothetically that a large part of these sub INR 2000 (~$32) transactions start going via the contactless/NFC route in the next 5 years. And I am counting both contactless cards and contactless payments via mobile and NFC. What is the size of the opportunity?
- There are more than 350 million debit cards and 19 million credit cards in India. May be even more now in 2015. Millions of transactions are completed every day that are below INR 2000 (~$32) - You could see metro trains and buses fitted with tap and go systems. State Bank of India (SBI) is currently conducting a pilot project of such contactless cards at the Chennai and Mumbai metro stations. - You could see Uber and/or Ola cabs put NFC receivers in their taxis, just like the yellow cabs in NYC All this sounds very ambitious right now, but with banks, FIs, Visa/MC, telcos, merchants, transit authorities, VAS companies and amazing fintech startups (a growing community), it can be made possible. We have already seen some interesting pilots and trials in the field of NFC in India.
NFC has become a new standard for mobile payments. A couple of years ago, we wrote a white paper on 12 payment enabling technologies - everything from QR codes, voice and face biometrics, HotKnot, NFC, in-app on phone and so on. People were writing off NFC in 2012/13 and analysts had lowered estimates. From Vivotech to Softcard (ISIS) there were numerous failures. Just when things were looking gloomy, Apple introduced the iPhone 6 with NFC and Apple Pay and the rest is history. Today it is becoming quite clear that from a Financial Services sector standpoint as well as the smartphone/OS companies' standpoint (Samsung, Google, Apple) NFC and its variants (including HCE based NFC) is the chosen technology for the long term. There are some exceptions but let's be honest here - the US is adopting it (Apple Pay, Google Pay, Samsung Pay and so on), Europe already has a good contactless infrastructure in several countries (including developing ones like Poland) and Japan, Australia, Canada are also well set to have NFC everywhere. Of course, it has issues of its own: it limits the number of players innovating and competing to solve the problems as it requires scale and execution/marketing muscle. So the fight is ultimately reduced to big OS players (Apple and Google), big banks (some of them going the HCE route) and in some cases, carriers. It is also quite restrictive from a consumer standpoint. Only people with certain types of phones can use it and on top of that they need to have the right kind of OS/service/ app and also need to do a few things to enable it.
The bank, and its credit card subsidiary – SBI Card – have launched the sbiINTOUCH Contactless Debit Card and SBI Signature Contactless Credit Card for quick, secure and hassle-free payments at merchant outlets. Contactless cards use the near-field communication (NFC) technology, enabling users to make payments by waving or tapping the card near the contactless reader instead of swiping or dipping it, SBI said in a statement. SBI is the largest bank in the country. It's not going to be an easy ride for even the largest bank. At present, SBI has about 5,000 such NFC-enabled POS machines in major cities such as Mumbai, Delhi, Chennai, Kolkata, Pune, Ahmedabad and Bengaluru. The bank plans to further increase the number of POS machines to 1 lakh (100,000) and convert existing machines into NFC-enabled. Even overall, the bank has just 220,000 POS machines across the country.
Things have been changing rapidly in India in the financial services sector in the last few years. And you might see some banks and private players (including international ones or JVs/partnerships) work aggressively on the POS terminal side. Axis Bank was quick to announce that it will enable 50,000 point of sale terminals at merchants for NFC based card payment acceptance. SBI said that it would be upgrading 100,000 existing point-of-sale (POS) machines to NFC compatible ones. Multiply that by many times to expect what the POS infrastructure might look like. Not to mention the metros, buses and transit opportunity.