Payments is the most popular service used by the widest customer base. Everyone recognizes some of the key players operating in the space like Banks (Issuers and Acquirers), Visa, MasterCard, NPCI (Interchanges) by virtue of seeing there logos at every ATM and merchant outlets and also on the face of their cards (Credit, Debit, Prepaid). I have come across many situations where at times people fall prey to frauds or unfair treatment due to their lack of awareness about the way digital payment works and the roles played by various involved parties in order to make the best use of the infrastructure available without any fear. There are enough precautions taken while building the systems and designing the surrounding processes to ensure customer is protected from wrongful conduct by malicious parties. This series is an attempt on my part to explain the fundamentals of digital payments in simple English in order to make common users of payments instruments aware of what goes behind facilitating the entire journey. Today I will try to focus on one of the most popular and oldest digital payment method for retail consumers, Cards.
Let’s first introduce all to the terminology commonly used in Card payments world to help you understand it slightly better and know which means what when you hear these terms in future in any conversation.
Debit Card: Your debit card is the plastic instrument issued to you by your bank that you issue to transact using the balance in your savings or current account with the bank. Because a debit card is always linked to a savings or current deposit, only banks (including Payment Banks and Small Finance Banks) can issue this card. The logo of the bank is printed on the face of the card.
Credit Card: A credit card is the plastic instrument that enables you pay through your credit account. While there are non-Bank institution as well that offer credit facility to customers through their lending products, currently RBI allows only banks to issue credit cards. If you come across a credit card issued by any non-Bank to you, it will be typically in partnership with some Bank. Like Bajaj Finserv Credit Card is offered in partnership with RBL Bank.
Prepaid Card: Prepaid cards are stored value cards where you need to load the money in the prepaid account where you can transact up to the amount loaded on the prepaid instrument and that is why are considered less risky since the exposure is limited to the amount stored. RBI issues PPI (Prepaid Payment Instrument Issuer) license to entities interested in issuing prepaid cards. Entities like EbixCash (formerly ItzCash), Amazon Pay, Mobikwik, Oxigen, Sodexo, PhonePe are some popular PPI issuers in the market.
Prepaid cards issued by banks are usually open loop cards and work on a wider merchant base depending on their ability to accept Visa, MasterCard or RuPay cards (will explain them later under section Interchange); while cards issued by PPI issuers are semi closed loop cards. Meaning for a card issued by a PPI issuer to work at any merchant the merchant needs to have a direct arrangement with the issuer of the card. You need to look for specific PPI issuer’s logo at a merchant outlet or website to know whether that merchant has an arrangement with the particular issuer to accept your prepaid card.
There are many variations of prepaid card instruments available in market with varying popular terms. I will explain some of them below:
- Mobile Wallet or Wallet: These are prepaid instruments issued digitally only and are typically accessed through a mobile app offered by the issuer entity. Some very popular wallets in the market are PayTM, PhonePe, AmazonPay.
- Meal Card or Food Card: These cards work only on grocery merchants or restaurants. Sodexo is the biggest issuer in this category.
- Travel Card or Forex Card: This is the card category typically issued by Banks or through FFMCs (Full Fledged Money Changers) where you can load money in foreign currency. When you are traveling to a foreign country any transaction done on your INR cards incurs surcharge to the tunes of 2-5% depending on your issuers called cross currency mark-up. In that situation it is advised to carry a travel prepaid card with money stored in that region’s local currency thus avoiding this mark-up every time you transact. There are even multi-currency variants available in this category where you can load the card in multiple currencies supported by the card issuer.
- FASTag: This is a new variant of prepaid card that has become very popular recently because of government’s push to digitize toll collection at toll booth across country. This is an instrument that works on near field communication technology where your card stuck on your windshield is read by the sensors installed at toll booths while your car is passing through. Since this is a standard amount to be deducted a rule based setting process the transaction without the need for an operator. Toll gate is triggered based on the transaction response. Open the gate if response successful, if not refer for manual intervention.
Other than above described variants there can be various other variants tied to the usage limitations on the card like general purpose with no restrictions, petro card working only at petrol pumps, student card with restrictions on the card usage set up by guardians or college etc.
Issuer: An issuer is the institution that has issued you the card you are holding and it has the logo of that institution on the face of card. Card issuers are typically banks or other entities licensed by RBI in case prepaid cards i.e. PPI issuers.
Acquirer: Acquirer is the institution that on-boards the merchant on payment platform. The logo on the Point of Sale (PoS) machine or on the transaction receipt generated is of the acquirer. In India only banks are allowed to become acquirers. Any other names you see or hear like Pine Labs, Innoviti, mSwipe etc all use one or multiple banks as acquirers to process their transactions.
Interchange: An interchange in the payments ecosystem is the entity that ensure interoperability between issuers and acquirers during the transaction. There are currently three interchanges active in India, Visa, MasterCard and RuPay (run by NPCI, National Payment Corporation of India). Logo of partnering interchange is always printed on the face of the card and displayed at merchant location/website. If the logo on the merchant location matches the logo printed on your card means this merchant will accept your card.
Example: When you use your HDFC Bank Visa card at a merchant of ICICI Bank, HDFC Bank is the issuer, ICICI Bank is the acquirer and Visa is the interchange facilitating settlement between two banks.
POS (Point of Sale) Machine: This is the small machine you find at a merchant outlet on which he/she dips, taps or swipes your card to process the transaction. The biggest manufacturers of these devices are Ingenio and Verifone. These are companies who manufacture these machines and sell to acquirers or payment facilitators, who then provides them to the merchants. These devices typically use traditional telephone line of GSM (mobile phone network) for connectivity.
mPoS: This is smaller version of the PoS devices that connects to a mobile phone for connectivity. The extension typically has a card reader and PIN pad for entering the PIN and a small display. They rely on the mobile phone for connectivity and do not print receipts as opposed to traditional devices. mSwipe and Ezetap are two key players in this space.
Payment Gateway: Payment Gateway (PG) is a piece of software doing the job of a PoS device in digital world. Any website of mobile app integrates with a payment gateway to accept payments from card instruments. Many banks have their own payment gateways with HDFC Bank being market leader in this space. However there are many non-bank players like PayU, CCAvenue, Billdesk, Techprocess, Razorpay, Payabbhi etc playing the role of aggregator to offer this service to merchants.