IndiaPay, the country’s ambitious domestic card payment system—similar to Visa and MasterCard— may take another three years to roll out its operations

Bankers in the country were eagerly waiting for the indigenous card payment system ‘IndiaPay’, that would have reduced transaction charges substantially. However, the IndiaPay card may take another three years to materialise, said a senior official from National Payment Corp of India (NPCI).

“It (the IndiaPay card) will not materialise in the immediate future because we have started our business. As per the plan, our focus at the moment is on ATM switches, then we will launch the cheque-truncation system at Chennai followed by a unique identification (UID) based financial inclusion payments and UA-switching or point-of-sales switching. The IndiaPay card is not (forthcoming) for the next three years,” the NPCI official said.

According to media reports, Nandan Nilekani, chairman of the Unique Identification Authority of India (UIDAI), had said that by February 2011, the Authority will start issuing its UIDs and later that year, when the NPCI is ready, the interbank switch will come into being.

Following the Reserve Bank of India (RBI) proposal to set up an umbrella institution for all the retail payment systems in the country, NPCI was promoted by the Indian Banks Association (IBA). NCPI is building a robust and state-of-the-art national level retail electronic payment system infrastructure in the country.

The idea of a domestic card-payment system is meant to compete with Visa and MasterCard, who have a virtual duopoly in card transactions worldwide and charge Indian banks a hefty fee for associating with them. Domestic card companies, till date, do not have any other option but to affiliate or tie up with foreign card companies, especially the two mentioned above, so as to enable them to spread their services globally.

India is following China in creating its own national payments systems. China’s UnionPay card was introduced in 2002, and gives access to over 85,000 ATM counters of 14 major and minor banks across the world.

In December 2009, NPCI took over the National Financial Switch (NFS) from the Institute for Development and Research in Banking Technology (IDBRT), in a bid to create more resources for it to facilitate retail payments. NFS covers 37 member banks with about 51,518 ATMs. The daily average volume at NFS was around 1.6 million with a peak volume of 2.6 million. In December, it recorded total volumes of 5.4 crore transactions.

NFS, which facilitates routing of ATM transactions through interconnectivity between bank switches, is also the largest network of shared ATMs in the country. NPCI, on the other hand, does only the processing for ATM switching. It still has to enter the post-switch business. But even on this front it is proving beneficial for Indian banks with its lower charges. For ATM switching, NPCI charges just Re1 per transaction while Visa and MasterCard charge about Rs3 to Rs4 per transaction. According to media reports, last year, Indian banks paid close to Rs400 crore to Visa and MasterCard as fees for processing ATM and credit-card transactions.

“Their (Visa and MasterCard) charge structure is different. Theirs is (a) volume-based (model). Higher the volume, lower the price. But ours is (a) flat-based (model),” the NPCI official said.

Consumers in India spend around Rs4,000 on an average every month using credit cards, compared with at least three times as much the amount spent by their counterparts in Asian countries like Singapore and Japan.

Industry sources are very optimistic about the domestic card payment system and its ability; many believe that the transaction process would become much faster.