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Digital payments decoded: an interview with Vishal Maru, VP, Worldline

Through the lens of UPI and mPOS devices, we try to understand the digital payments ecosystem in a post-demonetisation India

Digit: To start with, we want to get an understanding of what Worldline does or rather what an acquiring processor does. If you could walk us through a typical cashless transaction…

Vishal: Sure. While Worldline works on the backend, our philosophy is that we really want to make sure that the end user – the card holder – gets a very seamless, frictionless transaction experience. So on a very broad level we manage both the acquiring as well as the issuing processes. It’s not that we only manage acquiring, which is about the acceptance of transactions – we also issue cards on behalf of the banks. On the acquiring side there are four or five large components. The first component involves merchant account creation and the merchant management. So we create an account for merchants and we host them on our system and we do a lot of amendments and we manage the complete merchant life cycle through our merchant management system. Second piece is once the merchant account is created, you go and install the terminal at the merchant’s store. We manage to install the terminal, we manage to take care of the entire terminal life cycle, which means any service breakdown call is being managed by us. Third piece is when a terminal is installed for every transaction to connect to the switch, you require complete network architecture (telecommunication channels), which actually connects the terminal to our backend switch. We have 19 top locations available across India, which is amongst the highest in the country enabling us to connect to almost all the regions. We connect to about 10,000 odd pincodes to our service delivery network. The fourth component is about authorization which means switching. So once a transaction lands into our switch, we connect it to Visa/Master and Visa/Master in turn connects it to the issuer and gives us the authorization back and we push the authorization to the terminals. Here it could be either to the terminal or virtual space if the transaction is virtual as in the case of online payment gateways.Once the authorization is done, then the fifth piece is all about the settlements, reconciliations and payments on behalf of the bank and the merchants. We send across the payment files to the bank, the bank then in turn will submit those files or credit the account of the merchant. These are the critical 4 or 5 elements which we touch upon when it comes to the acquiring processing solution.

Worldline

Digit: Ok, so there is a certain overlap between what you do and a player like Paynear or an Ezetap would do.

Vishal: So we have got two divisions. One division is financial processing and the second is merchant services. Merchant services division is what people like Paynear or Billdesk would do. What we do on the merchant services side is that we actually go out and reach out to the merchants, we talk to the merchants and in some cases, we also own the merchants and we provide all these solutions which are well suited for the merchant acquirements. And when it comes to our second division, Financial Processing, the process which I explained above, is what we do.

Digit: When it comes to mPOS devices, what are the changes we’re witnessing in the industry?

Vishal: Things are changing quite fast. So earlier, about three to four years ago when India first started off with mPOS devices, there was a dongle which used to connect with the mobile through Bluetooth. Post-demonetisation, in the last couple of months, now we are getting integrated devices. Those are far better than the traditional mPOS because the cost of ownership of the dongle device is far more generally than an integrated device. So now in the last couple of weeks we have started to get the integrated devices which means that this device will be more like any other GPRS terminal but it will not have a charge-slip which will get printed out. Earlier you had to connect the dongle with the mobile or you had to plug the dongle in the mobile. All those hassles are going away now. It’ll take some time but those will tend to go away.

Digit: On the acquiring side, and on the financial settlement side, what is roughly your business model? How do you make money? Just looking for a broad understanding.

Vishal: At a broad level, merchant services is where we get revenue from the merchants and financial processing is where we get revenue from the banks. The revenue could be fixed or it could be variable. We work with about 22 banks and it has different models. One could be a fixed model, one could be fixed plus variable etc.

Digit: What are closed loop and semi-closed loop systems?

Vishal: This a pretty interesting ecosystem that we have built leveraging our ability – as I told you in the beginning – as a large issuing processing company. Generally, it is not being known in the industry, but we are also one of the largest issuing processing companies in the outsourcing side, with about more than eight or nine contracts on the issuance side. So with the issuance capability and our capability to manage the acquiring, we have created a product which is called closed-loop prepaid card. What it really does is it focussed on three or four key segments – one is community, second is education, third is wellness, fourth is petroleum. So we offer prepaid cards to the cardholders, to the consumers, and the consumer can load and reload the card within this closed-loop system, and they can also use the card within the same closed loop environments. For example, we had given cards to Lodha Palava – all the consumers at Lodha Palava can use the cards for purchase transactions as well as use the card for their access control or access management system, and also information management systems. All of this happens within Lodha Palava (a housing complex) so those are the closed loop kind of products that we have.

Digit: Okay, these are mainly used by corporates?

Vishal: These are used by corporates, who have huge subscription or consumer bases available like say Hospitals. We have launched our product with AIIMS. So if today, somebody goes as a patient to AIIMS, they will issue a closed loop prepaid card with which you can go to the pathological dept, the chemist, the medical shops in AIIMS, you can go to the canteen, you can access some secure areas within the hospital based on the permissions your card has – so that’s what the card is all about.

Digit: Coming back to the adoption of mPOS and digital transactions in the country, the way we see it, UPI adoption should negatively impact plastic products as well as digital wallets. Do you think that’s a valid statement?

Vishal: I think we should look at history to talk about the future. In antiquity, the barter system started, and then you got those pebbles and then coins and then came promissory notes and cheques, and now today if you look at this entire ecosystem of payments, all those old as well as new systems evolved together. It’s not like somebody dethroned one of the payment channels. All of them will co-exist. Yes, of course, UPI is growing pretty fast and it is pretty convenient for the people who are non-carded and plus also who are transacting P2P payments and have a bank account. So for them UPI is definitely the most convenient option. But I don’t think it’ll cannibalise the entire card-based payments, to some extent here and there, which is fine. That happens with any new form factor which will come in. But nothing is going to go away.

Indias digital landscape
India’s digital landscape

Digit: What are some of the government initiatives and schemes in place to encourage card adoption, or digital payments as a whole.

Vishal: If you look at the entire demonetisation phase, it was backed by the entire digital push. So today if you look at the card spends, they have actually gone up two times – which is now a new business normal. I’ve seen the digital payments space across the globe, but I haven’t seen such a fast growth anywhere, so far. Second is that all this push has resulted in a scenario wherein 70-80 percent of the usage comes from the debit card and about 25-30 percent is still on the credit card. Earlier, about 2-3 years ago, almost 80-90 percent was on the credit card and only about 10 percent was on the debit card. That’s pretty helpful for merchants as well as banks because with the cap on the debit card MDR, now the competition on rates has gone away. The competition is more to deliver better service, it’s more to offer value-added services, which is beneficial for the industry as a whole and consumer. Third is in the form of all the e-governance initiatives which have been taken by all the states as well as the central government where they are pushing all the government entities to accept digital payments. Fourth, is in terms of some tax benefit which has been given on the POS terminals. A customs duty has been taken off on POS devices which are imported. In the entire payments ecosystem, the POS terminal itself accounts for almost 25 percent of the overall cost. So, if there is a deduction available there, which also means, some benefit to the entire acquiring industry.

Digital payments

Digit: Looking into the future, when will India have a completely-Aadhar based (or biometric) payment system? Is that even possible and what are the hurdles towards that?

Vishal: So today as we speak, almost 60 banks are already on the Aadhar pay. And these banks have been on the Aadhaar phase on a particular line of business called financial inclusion. Now gradually, they are upscaling and bringing it onto the mainstream business which is like your credit and debit cards. Today the biometric transactions are happening more in the semi-urban or in the rural areas where the bank has got their banking correspondents where they are doing transaction on the Aadhaar, through the Aadhaar Pay with the financial inclusion model where they have already given those Jan-Dhan cards. The transactions are happening there because the banks were pretty much ready with the Aadhaar enabled payment system, with those devices and with those people who used to operate on the financial inclusion lines of business. Now all these banks are trying to get them on a mainstream which means you and me as a consumer should be able to transact through Aadhaar-enabled payment system. Lots of things are happening. There are companies like us who are helping building that ecosystem. There are a lot of other companies who are also equally moving fast into building the entire ecosystem. So, it will take a little time, for the implementation. It will also have challenges, like you said, how fast the transaction gets approved, on one side we are talking about, frictionless and seamless payments and on the other side we have got, centralized Aadhaar-enabled payments. So, we really have to see, how fast these transactions will go through, whether it’s convenient for all the set of consumers, whether it’s convenient for all the set of merchants, so all that has to be seen. I think it will take around 8-9 months to do all those research and really get to the right point and after that it really should start picking up.

Digit: And once it starts picking up, then biometric POS terminals will be available at merchants, is that what we are looking at?

Vishal: Maybe to start with it will be with dongles which will be connected to the POS devices of today, because there already about 2.2 million POS devices in the country and you cannot replace all the 2.2 million devices immediately. We’ll have to attach a dongle or a peripheral device to these last gen POS terminals. Even today, we are discussing internally to figure out the next lot of terminals that we are going to buy whether we really want to buy the biometric terminals.

Digit: Any other perspective you have on the future of payment systems and payment mechanisms within the country? Or maybe timelines?

Vishal: I think the pace is pretty good enough. I think there are a lot of new channels that are coming up which will help increase the entire percentage of consumer expenditure on digital. Today, I think about 9-10% of consumer expenditure are on the cards or in the digital payments. With all these new channels, I think the next 12-18 months this should be anywhere between 18-20%.

Digit: So, you’re saying it will double in the next 18 months?

Vishal: Yes, for sure.

Digit: What exactly is Bharath QR code, could you give me a brief overview of how it works?

Vishal: About a year back it was Visa who came up with a QR code which was called m-Visa. Then mastercard, came up with its own QR code. Then the Ministry of Finance realized that there is a requirement to have one standard that can encompass Master, Visa and RuPay. So, all put together, they formed one specification, which is now called Bharath QR code. Earlier, you used to have 3 different QR codes, for Visa, Master and Rupay and now you just have one simple QR code for all these together. It’s like having one card having Master, Visa and Rupay logo.

Digit: As a consumer, what would the experience with Bharat QR code be like? At the merchant establishment is a QR code generated on the LCD of the POS device, which can be scanned by the consumer?

Vishal: First on the issuance side we would need an application, which will be your bank’s application which can allow you to scan the QR code. So, that’s a mobile application you need to have as a card holder. Now, when you go to a merchant, the merchant will have either have a static QR code which is pasted somewhere in his store or he could have a dynamic QR code which could be on his mobile or which could be on the POS. Today, the ministry is also talking about including UPI into the Bharat QR code. Which means it will be a more comprehensive QR code, and I think that makes sense because more and more schemes and channels will get added to the QR code that will help in increasing the number of transactions.

Digit: If I have a card, which is either Mastercard, Visa, or Rupay, why would I not use the card and why would I go for the QR code?

Vishal: There are different use cases. I’ll just give you a simple example. So, today if you go to pay an electricity bill, now say there is a queue, one which could be for your card, second could be for your QR code, and third which third could be for your cash payments. There could be several use cases, the QR code typically helps you to avoid using your card and to avoid carrying your card. You can carry your card, if you find it more comfortable or you can depend on QR it’s up to you. You asked earlier how this new channel will cannibalise the old one, nothing will really cannibalise the other form factor, because every person would have a different requirement and every person would have a different set of temperament to engage with the payment chanel. Personally if you ask me I would prefer QR code for online payments because for the online payments I have to key in a lot of information to do a transaction whereas a QR code is far more simpler for me. There will be several use cases, over a period of time.

Digit: We’re at the end of our questions. Is there anything else you’d like to add?

Vishal: I think you should continue writing about digital payments. Education is pretty important for all of us. If you look at matured markets overseas consumers are fully aware about every dispute management and resolution process when it comes to digital payments. But as far as we Indians go, we still have to learn and catch up a lot in terms of understanding how the dispute and the chargeback resolution really happens within this entire digital payments ecosystem. I think there is still lots to catch up on in terms of education, so I think you should keep writing about all this.

Digit: We will. Thank you for speaking to us.

Vishal: Thank you. My pleasure.

Siddharth Parwatay

Siddharth Parwatay

Vertically challenged geek. Interested in things like evolution, psychology, pc gaming, history, web culture… amongst other things.