Trend from cash to electronic payment is irreversible

‘Tomorrow will be a better day than today,' says Mr Amrish Rau in the course of a conversation with Business Line. That's the kind of statement that one likes to hear in these troubled times and a slowing economy. But the man who says this is neither the author of any self-help book nor an evangelist who exudes sunny optimism.

He happens to be Vice-President and Country Manager, First Data India. And when he explains what his business is, you know that the numbers back him and his bullishness.

First Data Corporation is a $10-billion US Company that specialises in processing electronic payments. Its business philosophy is to be wherever there is a transaction that is not cash-based.

It operates in India through two arms. There is First Data India which handles payments services business (card issuing, merchant alliance programs and ATM services). And there is ICICI Bank Merchant Services (IBMS) in which FDC has an 80 per cent stake (ICICI Bank has 20 per cent) which is engaged in the business of merchant acquisition, setting up point-of-sale (PoS) terminals.

Their joint venture with ICICI Bank completes 25 per cent of the Indian payments market.

Consumer spending is the core focus area for First Data.

But as Mr Amrish points out, it is not easy to go to a retailer and tell him that they (First Data) would like to install a PoS machine. A big bank and a recognised brand provide the entry point. That's where the partnership with ICICI Bank comes in.

Excerpts from an interview:

What does First Data do?

Let me explain what we do. When you swipe a card on a PoS machine at a merchant establishment, there is a waiting period for approval. At that time, we take the transaction through Visa/Mastercard to your card company and get the approval and then bring it back to the PoS machine – saying “Transaction approved”. That concept of running the transactions is where we make our money. We do that on PoS machines and on Web sites.

On the internet side, we do 50 per cent of all e-commerce transactions that happen in India. This is also in some sense creating an infrastructure in a growth market like India. That's what we do for a living.

The world over, banks are getting out of the space of merchant acquisition and last mile connectivity. Payment companies such as ours are coming into this area.

Why don't banks see an opportunity in this area?

It has something to do with money flows. I'll give you an example with some rough numbers.

Suppose you spend Rs 1,000 in a restaurant on your card, your bank gets to keep Rs 15 for the transaction.

The Visa and Mastercard cloud through which all transactions come, get to keep about Rs 1.5 out of the transaction.

And because we have put up the PoS terminals, the people and other infrastructure, we get to keep Rs 3.5 out of this.

Banks are more interested in the Rs 1,000 and in the Rs 15. They are not interested in the Rs 3.5.

So they are saying that they don't want to do this. And we are there to do this.

It is a classic win-win situation for all.

What kind of volumes do you do?

We do 180 million transactions per year.

We are growing at 20 per cent a year.

Based on the RBI data, there is somewhere around Rs 1,20,000 crore worth of purchases that happen on cards (debit and credit card). Our share in this is 25 per cent.

Where are these transactions happening?

Most of it is related to travel and tourism – through sites such as IRCTC, other travel related Web sites.

Is there any area still untapped?

Government payments, mutual funds/insurance payments - these are emerging sectors.

Internet commerce has grown on the back of a strong application than on the premise that it is a good thing to have.

Companies which have done well there are those that offer a compelling value-proposition.

You may not know where your nearest travel agent is but you know how to go to ‘Clear trip' or ‘Makemytrip' and book your tickets.

Is the slowdown in the economy affecting your volumes?

No. On the contrary, we are growing. Even in the US, where we are the biggest player, and even in a slowing economy, we are seeing growth in e-payments.

In India we are seeing 25–30 per cent growth in e-payments.

In e-commerce transactions, we are seeing 50 per cent growth year-on-year.

I am forecasting that this sort of growth will continue for at least the next five years.

The beautiful thing for us is that when we go to sleep, we know that tomorrow will be a better day than today.

That is guaranteed. Very few industries have that experience.

The trend from cash to electronic is irreversible.

People will reduce their use of cash and increase their use of plastic.

So even if the economy is slowing, the electronification of transactions will rise.

This is happening even in the US, which is the most mature, advanced market in the world.

So, there is no stopping this growth.

Where do you see the maximum growth?

Tier-2 towns are exploding. Places such as Pune, Jaipur, Goa and many other similar cities are booming.

We are not seeing that much growth in the Tier-3 places – but that's more due to bandwidth of the community.

We have just covered the metros and now are moving into Tier-2 towns.

vageesh@thehindu.co.in