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India Scans Right, Swipes Left

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Hello Reader,

In this edition, we'll  inspect the Point of sale (PoS) way of payment - swiping and how UPI and scanning have disrupted swiping.

Let’s dive in!

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Swiping is out of fashion. The pandemic has changed the way we live our lives, and it seems like it has also changed the way we spend our money. Contactless payment became the norm, and it seems like this behavior is here to stay. Who knows, maybe we'll soon be living in a world where physical wallets and cards are a thing of the past! With scanning QR codes becoming more popular, traditional point-of-sale (PoS) players like Pine Labs, Ezetap, Mswipe, and Innoviti are feeling the heat.

Despite the growing number of cards in circulation, the average annual spending per card has remained stagnant at around INR 140,000 for the past three years. On the other hand, UPI transactions between peers and merchants (P2M) surpassed credit and debit card spending at PoS terminals in December 2022, with transactions amounting to approximately INR 2.9 lakh crore, compared to INR 1.7 lakh crore spent through cards.

As of now, there are around 5 million PoS machines in India, while QR codes have a deeper presence in the market, with around 25-30 million QR codes active on UPI.

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Fees: The Real Force

The average charges for debit card transactions in India range from 0.25% to 1% of the transaction amount, while credit card transactions can have higher charges of around 1% to 2.5%. Merchants may also be charged a fixed transaction fee for each sale, usually around INR 0.5 to INR 2 per transaction

On the other hand, UPI transactions are free for customers and merchants. The sender’s bank bears the cost of the transaction which usually ranges between 1%-2%. With UPI offering a 0% MDR, both merchants and users quickly switched to UPI, leaving PoS systems struggling to keep up. This 0% MDR made  scanning more popular than swiping.

Another source of revenue for PoS systems was sharing data and intelligence built on that data. However, with a massive volume of transactions happening through UPI using scanning, PoS systems are losing this advantage also.

Even the affordability suite like EMI and BNPL options offered by PoS players is being overtaken by UPI players like Paytm and PhonePe which have started offering scan and pay options using debit cards EMI and "Buy Now Pay Later" options. Previously, these were services offered exclusively by PoS systems. Overall, the rise of QR scanning has overshadowed the once-promising PoS systems, especially in the wake of the COVID-19 pandemic.

So what's next ?

The future of point-of-sale (PoS) swiping methods appears to be uncertain, given the rise of contactless payments and other digital payment methods. Swiping a card requires manual intervention and entering a PIN, which can be time-consuming and may expose users to security risks. In contrast, contactless payments allow consumers to simply scan the QR codes or tap their mobile device/card on the terminal, which speeds up the transaction process and reduces the risk of fraud or theft.

Moreover, the growth of linking credit cards on the Unified Payments Interface (UPI) platform or Rupay credit card is expected to further reduce the reliance on traditional swiping methods. With the increasing adoption of UPI-enabled credit cards, there is likely to be a further split of transactions between PoS and scanning methods, as consumers become more comfortable with the idea of using their mobile devices for payments.

As we mentioned in our newsletter last week, the world is moving towards biometric payments such as Smile to Pay and Palm to Pay, transitioning away from traditional contactless payments. Biometric payments will remove the need for a mobile device, simplifying the transaction process. Top industry players like Amazon and Mastercard are prioritizing the expansion of biometric payments globally. This trend is also gaining traction in India's payment ecosystem and we can expect to see an increase in biometric payments in the near future.

However, it is important to note that traditional swiping methods are not likely to disappear entirely, at least not soon. There will still be situations where swiping is necessary, such as when a merchant does not support contactless payments or when a transaction amount exceeds the contactless payment limit.

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  • January 23, 2024
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