There is no need of swiping the card at point of sale (POS)-just tap at the NFC based card reader to make instant payments. The contactless card, however, requires personal identification number (PIN), as per the Reserve Bank of India (RBI) guidelines.
The largest bank in the country, the State Bank of India (SBI), has already approached the RBI for an exemption from punching PIN in its proposed contactless card for small value transactions.
Will contactless debit and credit card be game changers?
Let's look at the current POS network in India. There are only about 12 lakh POS machines installed at the merchant outlets. That is despite the POS machine prices crashing to Rs 15,000.
The current POS network in India is like a drop in the ocean if one looks at the trillion dollar economy. The network never got scaled up despite banks issuining millions of cards. The top four bankers - SBI , ICICI Bank , HDFC Bank and Axis Bank - control over 60 per cent of the POS network.
In fact , it now entirely rests on the shoulders of these banks to scale up the new contactless card readers or POS) ecosystem. ICICI Bank, for example, has installed some 1, 200 NFC based card readers to kick off its new offering. The ground is actually set for a new payment infrastructure. There is an opportunity for banks to flood the market with NFC based readers , which cost as low as Rs 2,500. But will banks bite the bullet ? The views are divided as banks are working on different digital models and regulations are also evolving.
Today , banks are also simultaneously working on mobile based contactless payments at merchant outlets using the same NFC technology. Last year, the iPhone and iPad maker had launched its mobile payment solution 'Apple Pay' in the US and other markets. It's a huge hit. This new product allows contactless payment through iPhone 6 in merchant outlets. India, too, will soon see mobile based payment through NFC based card reader at merchant outlets. The second-largest private bank, HDFC Bank Ltd, is also working on a mobile based solution.
In the first phase , the bank will be issue an e-wallet by putting both the credit and debit card in an application based payment model. In the next phase , the bank will be introducing its offering which is similar to Apple Pay. A smaller bank like DCB is also readying to launch its tap and pay mobile payment service in India.
" The cost of a NFC bsed card reader is as low as Rs 2,500 ," says Soma Sundaram, founder and CEO of iKaaz Software , the technology provider of DCB. The cost factor is one big positive , which will see smaller retailers, such as a barber to a Kinara store, keeping a contactless card reader.
Like they say , old habits die hard. The other big issue is the tendency of people to use cash instead of plastic or digital money. Today, most of the transactions (almost 95 per cent) in the economy takes place in cash. Ours is largely a cash economy.
Take for example , the debit card analysis shows that the cards are increasingly used at the ATMs for withdrawing cash than for shopping. In the month of October (the month for which the RBI data is available ), for example, ATMs saw transaction value of Rs 1,92,300 crore whereas the transactions at the POS were only Rs 11,956 crore.
Bankers say there are customers who withdraw cash and pay for utility bills, fuel or shop. In fact , the recent RBI guideline is a step in the right direction when the regulator restricted ATM usage. It has restricted banks own ATM use by customers to five transactions per month, while reducing the other-bank usage from five to three transactions per month. The customers will have to pay Rs 5 to Rs 20 for exceeding the limit.
Be it proactive bankers or regulations, we are entering the age of digital money. But more than the banks or regulator , it's the customer who should take the lead and junk cash.