Visa slashes fee on debit card payments, wants more small merchants on board

13 June 2018: Visa, the largest card payments network in the country, has cut the charges it levies on debit card transactions, a move that could substantially increase India’s digital payments market by bringing more little merchants and customers into the fold. In a note distributed among member banks recently, Visa said it would cut rates on debit card transactions by up to 95%. ET has reviewed a copy of the note. The largest quantum decrease will apply to transactions under Rs 2,000. 
 
“Visa has reviewed its data processing fees to encourage everyday digital payment usage across consumer and merchant categories,” a spokesman for Visa said. “This will not only help drive the appropriation of debit card payments among consumers but also help client enterprises towards increasing digital payment infrastructure in care of the Digital India programme.” 
 
Competition from RuPay 
Visa commands more than 40% market share in India in terms of the number of card transactions on its network, as per industry estimates. 
Debit cards account for 96% of the cards in use in India but it’s credit cards that account for 51% of card payments in terms of value, ET reported on June 12. But with only 37 million credit cards in use in the country — as against 861 million debit cards — their usage does not translate to a mass selection of digital payments. Effective July 1, Visa’s charges suitable to card-issuing banks will drop to 15 paise for transactions under Rs 2,000 and to Rs 1.5 for higher-value payments, from a uniform rate of Rs 2.99 per transaction. For merchant acquiring banks, the payments network has reduced charges to 15 paise per transaction of up to Rs 2,000, from 45 paise. Issuing and merchant acquiring banks typically deduct these charges from merchants. 
 
Visa, however, has expanded the service fee to 0.055% of the transaction amount, from 0.035%. “Effectively, merchants and banks pay nothing for small-value transactions. With this move, it should become more attractive for banks to dispose terminals at small shops and encourage debit card payments,” said a senior banker aware of the developments. 
 
The new rates are effective only for domestic debit card transactions. “We call it the ‘sachet moment’ of the Indian financial services industry. Companies have to deliver low value, lower tenure financial services to consumers. This move fits into that,” said Vivek Belgravia, the fin-tech partner at PwC. “The strategy behind this move is to get small merchants to start accepting card payments.” 
 
Visa’s decision to cut its fees also comes in the backdrop of increasing competition from homegrown card payment scheme RuPay that offers cheaper rates, according to the bankers mentioned above. The National Payments Corp of India-run RuPay charges 90 paise per debit card transaction, they said. “Multiple payment banks and small finance banks have partnered with RuPay for their card according RuPay debit cards,” said the banker quoted earlier. With RuPay now offering credit cards as well, the competition could intensify further. 
 
“With (Visa’s) prices being lowered, banks will have a higher share of the charges on digital payments. We will make merchants more aware of these charges and, hopefully, resistance to card payments will reduce,” said Rajeev Agrawal, chief executive officer, Innoviti Payments, which deploys PoS terminals for banks. 
The domestic digital payments ecosystem is evolving in a multi-faceted manner. India has a sizeable card network as well as an increasing predominance of QRcode based smartphone payments. The government has set a digital payments target of $30 billion for this financial year, a major part of which has to come from debit card transactions. One hurdle towards achieving this has been the reluctance of merchants in holding the card