Visa and MasterCard, the global payment service providers, are pushing banks to adopt a new technology standard through a differential fee structure.
Both have announced an interchange fee that seeks to incentivise installation of point of sale (PoS) terminals and issue of cards that comply with EMV (Europay MasterCard Visa) standards. EMV is a technology where chip-based cards can be used.
According to the new fee regime, the bank which owns the PoS terminal (called the acquirer bank) will pay 120 basis points of the billed value to the bank which issued the card (called the issuing bank) if the card is EMV-compliant and the PoS terminal is non-EMV compliant. The normal fee paid to the issuing bank is 110 basis points.
To incentivise banks, which have installed EMV-compliant PoS terminals, the fee paid to the card-issuing bank will be 100 basis points if the card swiped is non-EMV compliant.
"The commercials between the issuing and acquirer banks have been sorted out by the new interchange fee structure introduced by Visa and MasterCard to ensure that most banks become EMV-compliant," said B Madhivanan, joint general manager, ICICI Bank.
The fee paid to the issuing bank would be 95 basis points if the EMV-compliant PoS provides the facility of keying in PIN by the card user. The interchange fee would remain unchanged at 110 bps if both the PoS terminal and the card are EMV-compliant, said a banking source.
Merchant establishments, where the PoS terminals are installed, pay up to 2 per cent interchange fees to the acquiring bank. Of this, 30 basis points is paid to Visa or MasterCard, the interchange fee to the card-issuing bank and the balance is retained by the acquirer bank.
Riding high on the late-mover advantage, ICICI Bank's 97 per cent of the 85,000 POS terminalsare EMV-complaint. Nearly 85 per cent of Citibank's 27,000 POS terminals are also EMV-compliant. Now only about 40,000 more POS terminals installed by various banks need to be replaced by EMV-compliant ones.
T R Ramachandran, business manager-cards, Citibank, said "Migration from a magnetic strip to a chip-based technology is desirable, yet it is not an immediate need. Fraud, however, remains the fundamental driver necessitating the migration."
However fraud rates in India aren't as high as those prevalent in Europe and South Asia, said sources. ICICI's Madhivanan said, "EMV standards have gained significance as most global banks have the practice of issuing smart cards. When foreign tourists come in they need to have an option to use their smart cards on our PoS terminals."
The cost per EMV-compliant PoS terminal is Rs 9,000 to Rs 10,000 if a bulk order of 20,000 to 40,000 such terminals is placed.
CHIP MIGRATION
- EMV is a technology where chip-based cards can be used
- FRAUD remains the fundamental driver necessitating the migration from a magnetic strip to a chip-based technology
- THE COST per EMV-compliant PoS terminal is Rs 9,000 to Rs 10,000 if a bulk order of 20,000 to 40,000 such terminals is placed
