India on Monday launched an indigenous debit card payment network called RuPay to compete with multinational Visa Inc. and Mastercard Inc. and help banks reduce cost of issuing a debit card. It will also help in extending payment network in rural areas.
The card system, similar to China UnionPay network, was first envisaged by the banking regulator in 2005.
Five banks—State Bank of India, Bank of India, Union Bank of India, Bank of Baroda and Axis Bank Ltd—have been informally running this for months.
National Payments Corp. of India Ltd (NPCI), jointly owned by banks, is the nodal agency to manage and promote RuPay. NPCI manages the electronic payments in the country
A.P. Hota, managing director and CEO of NPCI, said 200,000 cards with the RuPay brand name have already been issued and the target is to have 10 million debit cards under the brand by March 2013.
He expects this to be used as a system for credit cards by March 2015. He also expects all public sector banks to join the system by the end of calender year 2012.
“Foreign card payment systems charge $50,000 as joining fees, but we will charge nothing. Since we are using indigenous technology and the transaction will be processed domestically, banks’ cost will come down by 40% compared with international schemes,” Hota said.
NPCI will charge 10 to 15 basis points (bps) of the transaction value as fees per transaction, almost half of what multinational payment companies charge, Hota said. One bps is 0.01%. “We are a not-for-profit company and we will ensure that these cards are issued by even the smaller urban cooperative banks and regional rural banks, which were so far kept out of the system,” Hota said.
Indian banks will also save on foreign currency because the fees to international payment companies that were so far paid in dollars will now be paid in rupees, Hota said.
Reserve Bank of India (RBI) executive director G. Padmanabhan said the central bank will not endorse banks to choose the RuPay network. “Banks can choose what they want, but if the costs are so low, then obviously they will save a lot,” he said.
India has around 260 million debit cards in use. Hota expects 50% of all debit cards to bear the RuPay name in the next three years. Consumers can use the RuPay based debit cards on the Internet from September.