Payment Gateway Systems - Alternative to MasterCard & Visa


Various countries have started opting for alternative payment gateway systems to MasterCard and Visa to save on foreign exchange and transaction costs. In this article Navneet Saxena discusses two of them

India’s Rupay

Rupay was launched by National Payments Corporation of India (NPCI) on March 26, 2012. In its Payment System Vision document 2009-12, the Reserve Bank of India (RBI) had envisaged the possibility of launching a domestic card. Accordingly, NPCI was authorised for a pilot launch of RuPay debit card. The card has since been launched. The RuPay card is meant to promote a payments and settlement platform for card transactions at a low processing fee, making it viable for smaller merchant establishments to accept card payments for even low-value transactions. This is expected to provide a further fillip to card transactions in the country, thereby reducing the use of currency.

NPCI has been set up as an umbrella organisation for retail payments with an objective of integrating and consolidating various clearing houses in the country for cheques and electronic payments and introduce new payment applications with focus on electronic payments.

NPCI has already introduced Rupay—an indigenous domestic card scheme. It has also started operating interbank mobile payment system (IMPS) which offers an instant 24X7, interbank electronic fund transfer service through mobile phones.

The NPCI has charted out a three year growth plan to expand base of its newly launched first-ever indigenous payment gateway—Rupay. This in turn, is likely to give a good run for money to the multinational biggies like Visa or MasterCard. It now plans to use its just-launched debit cards for online transactions.

RuPay market share is currently not so significant. However, NPCI plans to make it a major rival force to other two existing players in next three-five years. NPCI expects to launch the Internet acceptability to the existing RuPay debit card soon. They have already closed a deal with a US based IT-solution provider. Later in March 2013, they will issue RuPay-enabled international debit cards. Finally, they will launch RuPay credit cards in March 2015

NPCI, promoted by 10 banks under the aegis of Indian Banks Association (IBA) had introduced RuPay enabled ATM cards in June 2011. Two lakh ATM cards are already in the market. On March 26, 2012 it launched debit cards, which can be used in ATMs and different point of sales (PoS). So far, four banks including Union Bank of India, Bank of India, State Bank of India and Axis Bank have joined the network of RuPay debit cards. This means, a customer of any of those banks can use such debit cards.

NPCI is in talks with ICICI Bank and HDFC Bank, the lenders with majority of PoS terminals. Together these two entities own more than half of India's 6 lakh total PoS terminals. At present, RuPay is accepted in 2.10 lakh PoS terminals enabled by Axis Bank and SBI. Such terminals are kept in different merchant outlets wherein you can swipe your debit or credit card.

Banks have to pay less to the payment gateway provider. For example, banks have to pay nearly Rs. 2 for a customer's transaction size of Rs. 1,600 in RuPay network while the same is around Rs. 2.80 with Visa or MasterCard. Secondly, there is no entry fee for banks to enter RuPay network while lenders would have to pay around Rs. 25 lakh each in case of other two providers. Finally, banks need not pay a minimum quarterly fee in the RuPay network. However, the same fee would be in the range of Rs. 10 lakh –Rs. 30 lakh for other two major gateways. Moreover, RuPay helps in financial inclusion as many co-operative banks and regional rural banks (RRBs) are included in its network.

The need for a domestic payment card the “Rupay” card is on account of two factors: (a) the high cost borne by the Indian banks for affiliation with international card associations in the absence of a domestic price setter and (b) the connection with international card associations resulting in the need for routing even domestic transactions, which account for more than 90% of the total, through a switch located outside the country. NPCI has since been granted approval to launch the “Rupay" affiliated cards for use at ATMs and Micro ATMs. NPCI has been advised to ensure that the use of these cards under the Aadhaar Enabled Payment System (AEPS) is in strict compliance with the DBOD (Department of Banking Operations & Development) guidelines on business correspondents (BCs).

The RBI deserves to be commended for the initiative it has taken to launch RuPay, an indigenous, cheaper alternative to the card-based payment systems such as Visa, MasterCard and American Express. It got local banks to promote a not-for-profit NPCI, the author of RuPay, which offers the same services offered by Visa and MasterCard, but at a much cheaper cost.

RuPay will compete with Visa and MasterCard in terms of cost and quality of service, and it is only natural to expect the incumbents also to reduce their rates. It is imperative for India to create a low-cost electronic payment system if the ongoing endeavour to overhaul the existing system of welfare payments and subsidies is to succeed. The unique identity project will deliver a unique numerical tag for every Indian resident, which can then be used to create unique electronic bank accounts.

Transferring welfare and other payments from government treasuries directly to beneficiary accounts would be possible. Thereafter, if the beneficiary can use electronic cards to spend the money in his account, it would remove one more layer of administrative mediation with its potential for corruption and leakage. But, for tens of millions of rural people to swipe electronic cards in rural shopping outlets, ubiquitous telecom connectivity and an ultra low-cost payments' system are essential.

The ongoing broadband rollout, optical fibre connecting 250,000 panchayats and wireless broadband taking on the last mile challenge, will provide connectivity. Now, RuPay is poised to provide the payments' system as well. India could well soon see a cashless revolution unimagined even a year ago, which would lower costs and enhance security and transparency, all leading to better governance.

It only now remains for the RBI to accept full-fledged mobile banking to achieve financial inclusion. RuPay, apart from offering lower costs, also offers greater security to the extent data does not travel outside the country. It should be marketed to other countries in the neighbourhood and beyond, as well.

China’s Union Pay

Established in March 2002, UnionPay is a bankcard association established under the approval of the State Council and the People’s Bank of China. At present, the Shanghai-headquartered UnionPay has about 400 domestic and overseas associate members.

UnionPay has become the central and pivotal part of China’s bankcard industry, and plays an essential role in the industry development. As the bankcard association in China, UnionPay operates an inter-bank transaction settlement system through which the connection and switch between banking systems and the inter-bank, cross-region and cross-border usages of bankcards issued by associate banks could be realized. Based on the system construction and operation as well as the bankcard network, UnionPay actively collaborate with various industrial parties like commercial banks in the efforts to formulate and extend united UnionPay card standards and regulations, create independent bankcard brand, promote the development and application of bankcard, maintain an orderly bankcard acceptance market and prevent bankcard risks.

The establishment of UnionPay stands for the formation of a new industrial system - “joint stipulation of rules, joint popularization of business, joint expansion of market and joint standardization of orders”. It also indicates an intensive and scale development of China’s bankcard industry as well as a new phase of comprehensive and rapid development.

Ever since its establishment, UnionPay has actively responded to the social and economic development in China and the demand for bank cards, with its industrial mission and social responsibilities in mind. UnionPay brings its functions as a bankcard association into full play through cooperation with relevant parties of bankcard industry like commercial banks and professional institutions to blaze a new trail with Chinese feature for the development of China’s bankcard industry. By doing so, UnionPay has not only safeguarded the economic and financial security of China, but also promoted unprecedented and spanning development of China’s bankcard industry, and enabled China to be one of the fastest growing countries with greatest potential in the bankcard industry worldwide.

With the joint efforts of UnionPay and several commercial banks, the bankcard netted utilization in China has been continuously deepened. In addition to the increasing coverage in the eastern regions and large and middle-sized cities, UnionPay network also extends to the middle and western regions, the middle and small-sized cities as well as the rural area. In 2010, domestic UnionPay acceptance network accelerated extension to small and medium-sized cities and the broad rural regions, the numbers of bankcard networking merchants, POS terminals and ATM machines respectively increasing by 40%, 38% and 31%. A scale bankcard acceptance network has been taken shape in China. Along with the continuous deepening of netted utilization as well as ongoing improvement of bankcard acceptance environment nationwide, the bankcard transactions also grow rapidly. In 2010, interbank transaction amount of domestic bankcard reached 11.2 trillion Yuan, a year-on-year growth of 46%. The proportion of bankcard consumption in the total volume of retail sales of social consumables increased from 2.7% in 2001 to 35% at present.

In order to meet the growing demand for card use of the Chinese in overseas business, travel and study, and to extend the services of domestic commercial banks abroad via UnionPay network, UnionPay is dedicated to the construction of an international acceptance network. As of today, UnionPay cards have been accepted in 125 countries and regions outside China. Meanwhile, UnionPay also actively promotes issuance of UnionPay standard cards overseas, with a goal of providing payment convenience for foreigners in their work, travel and study in China. At present, 65 institutions in 17 overseas countries and regions have issued UnionPay card locally, with an accumulated card issuance volume of more than 10 million pieces. UnionPay cards are not only well accepted by the domestic cardholders, but also highly appreciated by cardholders in more and more countries and regions.

In response to the economic and social development in China and to fulfill the industrial mission and social responsibilities, UnionPay has joined hands with domestic commercial banks to create an independent bankcard brand—UnionPay card. In August 2003, UnionPay officially launched UnionPay card, its international and high-quality bankcard brand with independent intellectual property that meets unified business practices and technical standards. Thanks to the popularity of UnionPay cards, UnionPay brand also enjoys a high reputation in China. According to the investigation by A.C. Nelson, an international authoritative investigation institution, up to 100% domestic are familiar with UnionPay brand, a much higher rate than that of any other famous bankcard brand in China.

UnionPay strives to promote various bankcard-based innovative payment businesses to meet the increasingly diversified requirements for card use. Cardholders can not only use bankcards at ATMs and merchant POS terminals, but also pay utility bills, book air tickets and hotels, repay credit cards and transfer money, among others, via various emerging channels like Internet, mobile phone, fixed telephone, self-service terminal and digital TV. Under the joint efforts of UnionPay, commercial banks and other relevant institutions, a bankcard acceptance environment with broader scope, more fields and more channels is taking shape. It will meet the diversified requirements for card use of the Chinese people.

The Chinese government has paid close attention to UnionPay since its establishment. On January 16, 2010, General Secretary of the CPC Central Committee, State President and CMC Chairman Hu Jintao made a special trip to visit UnionPay during his inspection tour in Shanghai, praising that UnionPay card independently developed by UnionPay promoted the development of bankcard industry and brought convenience to the mass people in our country, pointing out that bankcard industry was a promising industry and encouraging us to constantly expand our business fields, improve our service level, accelerate our internationalization process, and strive to establish “UnionPay” as one major bankcard brand worldwide. Premier Wen Jiabao has paid two visits to UnionPay. In his visit to UnionPay in May 2007, Premier Wen Jiabao highly appreciated the achievements obtained by UnionPay in the promotion of netted utilization, the construction of independent brand, the process of UnionPay internationalization and the innovation of bankcard payment. Premier Wen Jiabao also proposed the guidelines for the bankcard work under new circumstance: safety, unification, innovation and popularization.

As China grows stronger, it calls for a robust and independent bankcard industry, which entails concerted efforts made by the entire bankcard industry in China. UnionPay will, in line with the new requirements of the government, sufficiently exert its function as a card organization, and collaborate with commercial banks to maintain the discourse right and a dominant position in China’s bankcard industry, safeguard the economic and financial security of China, further promote the development of bankcard industry, as well as provide quality, safe and efficient bankcard service for the public. The ultimate goal of UnionPay is to become a bankcard association with national authority and trustworthiness as well as international competitiveness and influence, and to create an independent payment brand of China with global influence that serves China and more countries and regions

Current Situation of China’s Payment System

Financial infrastructure for payment system etc is completing and its promoting function to the social economic development is emerging. 

Presently, China has primarily established a payment & liquidation networking system, regarding the modernized payment system of the People’s Bank of China as the core, internal payment systems of financial institution in the banking industry as the basis and the instrument payment system and bankcard payment system as important components, and it’s playing a more and more important role in speeding up circulations of social capitals, improving payment and liquidation efficiencies and facilitating the healthy and stable development of national economy.

The writer is an assistant professor at Amity International Business School.



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