Point of Sale (POS) Terminals deployed by Banks in India

The deployment of Point-of-Sale (POS) terminals-Electronic devices used to make payment by debit/credit cards rather than paying by cash at merchant/retail stores-doubled to 3.2 million at the end of May 2018 from 1.5 million in 2016 November, when Government of India (GOI) announced demonetisation. POS transaction is expected to rise in future as GOI initiative to reduce MDR for small merchants and encouraging banks to promote digital transaction. The business of deploying POS terminals has become fiercely competitive among banks after demonetisation. State Bank of India (SBI), public sector largest bank in terms of assets is retaining top position before and after the demonetisation. However, there is a skewness towards deployment of the terminals, top banks -SBI, Axis Bank, Ratnakar Bank, HDFC Bank, ICICI Bank and Corporation Bank have the highest number of terminals, accounting for more than 80% of all terminals in the country. The skewness in deployment of terminals among top banks could be due to competitive Merchant Discount Rate (MDR)- the merchant has to pay the issuer bank-,An inter-bank transaction fee for debit/credit card.

Who gains and who losses under POS terminals transaction?

Theoretically, the end-customer does not have to pay any charges for swiping his/her debit/credit cards at the POS terminals but practically merchants shift MDR, which they pay to issuer bank, to the customers by increasing cost of the product and services sold. The MDR that the merchant pays is divided among three entities, the issuer bank (which issues the Debit/Credit card), the acquirer bank (which installs the POS), and the payment gateway. The issuer bank get the maximum share of the MDR. To avoid arbitrary charges charged by banks, Central bank of India, RBI has capped MDR for debit cards but not for credit cards. Effective July 1, 2012, MDR for debit card is 0.75 percent of the transaction amount for value up to RS. 2000 and 1 percent for transaction amount for value above RS. 2000. For Credit cards, the MDR varies between 1.5 percent to 2.5 percent. Competition among banks to deploy POS terminals furnish bargaining power to merchants to get the terminals installation at lower MDR.