POS machines likely to outshine ATMs as India hurries towards less-cash

Led by demonetisation, people across India are being forced to get more flexible in adapting to newer payment platform like POS terminals and mobile payment mediums.

M B Mahesh, Nischint Chawathe and Abhijeet Sakhare of Kotak Institutional Equities said, “With 0.2 million ATMs and 1.4 million POS machines, Indian banks are getting an unexpected benefit coming through demonetisation as the bulk of 0.6 billion debit cards and 0.02 million credit card holders have started to look seriously at newer channels of payment.”

In the month of November, when demonetisation took place, total value of Rs 35240 crore was carried out on POS machines.

A POS or a point-of-sale machine is a mobile device connected to the internet that is used to transfer money using your debit or credit card. 

After demonetisation, volume through POS machines has been growing at 30% compound annual growth rate (CAGR) since FY2013 while those through ATMs, at 15% CAGR.

However, growth trends between ATM and POS machines are showing marginally dissimilar trends.

Though, payments by value and transactions have been rising steadily in recent years, these payments are yet lower compared to transactions through ATM network, said Kotak.
 

Compared to ATM network, transactions at POS machines are growing at lower pace. 

Till second half of current fiscal (Q2FY17), onsite ATMs have grown 29% CAGR to 0.9 million while offsite ATMs have grown 24% CAGR. 

Also, Kotak believes that growth in ATM volumes to see a strong momentum in the medium term, as banks push more towards debit card usages.

Yet, led by electronic payment boost by government post demonetisation growth through POS mediums will accelerate further. 

Under POS, credit and debit cards both account for 60% of total volume and 40% by value. 

From the above, it indicates that share of business is dominated by debit cards by number but credit cards by volume. Average transaction in a credit card is 3,100 which is 2.5 times of debit card and has been rising over the past few years. 

Among the banks, State Bank of India (SBI) has the highest market share in POS business with 32% of overall transactions by volume and 26% by value. 
HDFC Bank and ICICI Bank have a broadly similar share. Together these three banks hold 60% of value and volume of overall business in transactions through debit cards on POS terminals. 

Going ahead, POS will be boosted by RBI's recent move of reducing the MDR (Merchant Discount Rate) cap to tap digital payments.

On December 16, RBI relaxed the MDR cap on debit card transactions at 0.25% upto Rs 1000 and 0.5% between Rs 1000-Rs 2000. Earlier banks kept MDR for debit card transactions not exceeding 0.75% upto Rs 2,000. 

Kotak said, "In an discussions with some industry experts, it was noted that the economics of POS business favors issuing banks as compared to acquisition banks."

POS business has been shining in various emerging markets along with India. Growth in ATMs has seen a slowdown in a few developed countries, while transactions through POS terminal are growing commendably.

In the year 2015, India recorded growth of 14.3% in ATM compared to 16% in FY14. While it grew by 23% from 5.7% in FY14.

“We believe it unlikely that India would completely leapfrog to a ‘less cash’ society by moving directly to mobile payments. We do see banks continue to make aggressive investments in building a POS framework in the medium term as new initiatives allow consumers to make contactless payments, added Kotak.

Kotak said,"We see POS continuing to outshine ATMs over the long term but the threat would come from other channels like mobile-based payment solutions."