There are just three, maybe four, companies that dominate the payment processing industry worldwide. All located geographically within one part of the US, all doing exactly the same business of operating as middlemen in a foolproof business
Look again in your wallet, purse, pocket-book. Try to recall the last monetary transaction you did on the Internet. Check out the signs on the door to the ATM. Think about when you went to any commercial establishment transacting money for goods or services and did not find an option to not use cash. Chances are, the answer to all this is very simple, though they've almost become brilliantly invisible by sheer over-exposure-American Express, MasterCard and Visa. Multiply this by many million users on date, and think of how the telecom industry grew in India, and get an idea of the growth rate in the payment processing industry looking everybody in the face.
Here's another simple fact, the numbers will just divert the importance-India is today the world's fastest-growing country (or market, as foreign investor-speak will position us) for percentile growth in number of ATMs and usage of plastic and other forms of "electronic" and non-paper money. Credit cards, debit cards, mobile phone payment systems, special products for the Internet, wire transfers using coded exchanges, pre-loaded cash cards and more, simple and corporate havala -the list goes on. In a society where havala has got sanctity, where the local money-lender is still an institution, and money without footprints has been the sought-after holy grail, this is one industry which, if properly monitored, could put the business of undocumented cash out of business-the numbers are so high.
So what is the Reserve Bank of India doing about it? Why are large parts of this industry in India still controlled from abroad, by non-Indian entities?
Actually, to give the people at RBI their due, they seem to be trying. PayPal was blocked off for some time till it started adhering to Indian government regulations. Western Union agreed to stricter monitoring-though there are some open issues there, still. MasterCard, Visa and American Express are reluctantly and slowly, but eventually, falling in line with demands being made not just for consumer protection, but also for adherence to Indian laws. And the rules as well as regulations for mobile phone payment systems as well as plastic money are certainly improving. All this, for a business which is essentially a foolproof middle-man service, one without risk. Stand in the middle, and collect commissions from both the merchants and the banks. Then, as though that was not enough, also earn money by a vast variety of other means-customer spend patterns, penalties, fees and charges for everything under the sun, and analysis as well as benefits from date collected are just one small part of the huge pie.
(Personally, this correspondent recalls the panic with client companies after the nuclear bomb explosions by India in May 1998, on how the payment processing industry's analysis could have missed out on such an important event. It is an accepted fact that spending patterns of targeted people as well as groups are regularly analysed by these companies and their, "associates".)
Take this a few logical steps forward. Gambling-problem in paying or receiving funds. Converting funds from the narcotics business-the turnover here exceeds that of the oil and automobile businesses put together. Payouts and receipts for what is discreetly known as the "preventive defence" industry. All these, and more-need middlemen. And these middlemen have a track record as well as history of swallowing up competitors-and whole economies if they don't fall in line.
Think 'EuroPay', swallowed up by MasterCard, which was supposed to provide strength to the euro in Western Europe and the rest of the world. Think JCB, Japan's pride, now relegated to tourist business of the Japanese sort. The list goes on.
But there's a difference now-the dominance of the North American customer is slowly giving way to a new global reality-one who does not spend in dollars or even in a currency not linked to the dollar. And India is on top of the growth stakes. Whichever way you look at it.
Think about how just one government organisation, the Indian Railways, is rapidly trying to move cashless and paperless. My last train trip from Dehradun to New Delhi was transacted completely on mobile phone, paid online, and I boarded the train without a paper ticket, just flashed a PNR received by SMS.
So here's something which has been on the back-burner at the Reserve Bank of India, and now with the National Payments Corporation of India Ltd, for the last three-four years.
""India Card -A domestic card initiative-The concept of a domestic payment card (India Card) and a PoS switch network for issuance and acceptance of payment cards would be looked into. The need for such a system arises from two major considerations (a) the high cost borne by the Indian banks for affiliation with international card associations in the absence of a domestic price-setter (b) the connection with international card associations resulting in the need for routing even domestic transactions, which account for more than 90% of the total, through a switch located outside the country. ""
What's a POS? Typically, that little machine on which your card is swiped, but increasingly now it can mean just about any computer on any network, anywhere. About as low-tech as it gets. And a "switch"? Nothing but a super-computer, for which technology called software is developed for large volumes of transactions and databases. In India. How do I know all this? Because I headed the India operations of one such company till a year ago, before I left them, fed up of the way it was interfering with what I can best define as "national interest".
Note: This statement from RBI's website has one small error-the percentage of purely domestic transactions in India for plastic and other forms of electronic money held and owned by Indians is reportedly over 99%-both in terms of numbers of transactions as well as value of transactions. Despite this overwhelming number, the "middleman" company in this business, continues to run this business from out of India.
Here's one more comment on the payment processing industry from the respected maverick of the US money industry, Motley Fool:
"We came across this company quite by accident several days ago at a blog site. Normally we would pass on companies in the financial industry since we simply don't trust their management, believing them for the most part to be liars, cheats, and thieves. At least that's our opinion of them given the events of the past year or so. Still, we found ourselves more than a bit intrigued once we came to the conclusion that this company was, in the simplest of terms, just a middleman for the electronic transfer of payments between different types of businesses, meaning they get paid first from by the merchant for receiving the transaction, and then again by the financial institution for sending the transaction. This sounded like a pretty sweet deal to us, so we invested a bit of our time in hopes that some small understanding of Total Systems Services, Inc. (NYSE: TSS) might be a pretty sweet deal for us too."
And there are just three, maybe four, companies that dominate this business worldwide. All located geographically within one part of the US, all doing exactly the same business of operating as middlemen in a foolproof business, and all with their beneficial ownerships hidden behind a web of cover companies in the tax-havens of the world. Disclosures being forced on them by the US government over the past few years means that some details are creeping out, but mostly this remains one of the most secretive businesses in the world, and now rapidly trying to dominate in other countries too. Like India.
It is not just about this being an immensely profitable business, too. After all, the business of moving money without reference to its colour or antecedents, has always been profitable, which is why Switzerland and Luxembourg and other havens became famous for physical storage.
But now the money moves electronically worldwide, and in tremendously large volumes, so there is more need for control of the technology and process than of the actual physical money itself.
So why are we, in India, still dependent on Visa, MasterCard and American Express, and their associate entities even for our domestic transactions? Answers are difficult-key people who understood the business were moved out, the power of these companies is enormous and reaches everywhere, and most of all-there seems to be a total lack of initiative in trying to do something which would set us free.
I mean, we have been independent for about 63 years now-and we still need to depend on what are, essentially, foreign banks and their cohorts as well as associations for domestic transactions? Especially when it is Indian companies that supply the technology to them.
(This is the first part of an ongoing series).
Over 99% of plastic, Internet and electronic money transactions in India by Indians — by value and number —are purely domestic. Then why is this crucial business handled only by foreign companies?
Just for a moment, sit back and imagine an extreme scenario - it is the year 2010, in an alternative independent India, with a very open market philosophy, and low self-esteem. Our EVM (Electronic Voting Machines) are controlled and maintained out of Florida. The price of bus and train tickets is set in Singapore, and the Indian Railway's computerised reservation system is centralised in Toronto. Mobile phone companies are all from Holland, and mobile phone instruments are sold only if they were made in Finland or South Korea. Cars are now imported only from Germany, the UK and Italy. Auctions for tea and shipping freights are undertaken only in London - for domestic as well as international markets. And of course, India's currency is still printed and designed at Threadneedle Street, and fuel prices at filling stations will be set in Houston, Texas. And everything is released in India only after it has run its course abroad, and newer versions or products are released there.
The list can go on. And on a personal level - Indians are not allowed to be Captains and Chief Engineers on Indian flag ships. (Incidentally, this was the case with more than a few Indian flag owners even till as recently as the '70s).
Thankfully, over the past few decades, we grew out of all this dependence and lack of self-confidence as a country. Rare and stupid is the manufacturer who does not do a simultaneous release of anything in India. Regardless of anything said, slowly but steadily, India is reaching a level where everything can be manufactured or done locally.
Except for the payment processing industry. In the course of researching details for this series, your correspondent met up with a variety of people in the payment processing business - all with hardly a kind word for the Reserve Bank of India (RBI) and its rules - but none of them knew what to say when equally tough and strong rules about banking systems abroad were quoted. When asked a direct question on why this could not be done in India, the answer was always the same - oh yes, it can be done tomorrow, but the RBI has to take the lease.
I mean, even letting credit card data out of the US is something that is not permitted, and here we are in India - our complete plastic and electronic money information is transacted out of India. Wonder what the RBI has to say about that?
Now at the risk of being repetitive, but it is important, so, try to rationalise this. If over 99% of plastic, Internet and electronic money transactions in India by Indians, by value and number, are purely domestic, then why is this important business, as well as the information it generates, still permitted to be controlled by Visa, MasterCard and American Express, using three or maybe maximum four payment processing companies operating out of one geographical area of the USA called Georgia?
It would not be unfair to compare this with the way an entity called 'ARAMCO' operates in Saudi Arabia. An organisation so huge and powerful, that the bravest of the brave fear to even write about it, also because so little is known about it. However, being an ex-shippie has some benefits, and one of them is an exposure to the way oil moves all over the world. And an idea of the forces behind it. From landward, most of humanity cannot approach within miles of any oil facility, and those who do work there learn very soon to stay very quiet about realities. But we approach from the sea, and move right into the heart of where the action is, and after some time become very cynical as we go about our lives.
ARAMCO controls the transactions of all the oil in Saudi Arabia. Oil is currency and capital there. In effect, ARAMCO controls the spigot, the tap, and so it controls everything there.
Likewise, here in India, as the New Age progresses, it is our large consuming population which is increasingly currency as well as capital. The money they earn, remit, spend, save and everything else - the transactions go way beyond anything that the whole world's oil economy put together can even conceptualise. At least ARAMCO operates from Saudi soil. Here in India, our payment processing system doesn't have that privilege, and not because it is something that we cannot handle ourselves in India. Not just the hand on the spigot/tap, but the spigot/tap itself is located outside India. And it is not as though the payment processing industry is about rocket science. The standard on complicated monetary transactions across a vast range of platforms and modes is the Indian Railway Passenger Ticketing System. Setting up multiple switches for a domestic payment processing industry would be something they could do in very good order and very short time, as per inputs provided to this writer - and they apparently have been waiting in the wings to do exactly that for over a decade now.
Briefly, this is what the payment processing industry does. Like a many-sided crystal, each one linked to the other, it is beautiful in its simplicity. At its simplest, it operates as a trusted via media between a seller and a buyer, regardless of location or origin of both. At its most complex, it behaves as a multi-role middleman between the merchant and the buyer, again regardless of location or origin of both, but also facilitates the shipment and delivery of goods or services, to some extent intercedes in quality and quantity issues, handles foreign exchange transactions, provides credit and loans, assists in masking the real nature of the transaction, and so on and so forth. At the extreme, it also provides cover for and participates on the basis of money that has no colour or soul, in every dubious activity that humanity can possibly think of - witness the close synergy between them and, for example, the corporate pornography and organised prostitution business.
Since we are not in the morality business, we let that one pass - but let nobody else pass snide remarks on India's black economy being one reason why payment processing cannot be done in India.
As an aside, here is this question: Which two corporates are the world's largest - first and second - and are possibly now merging, in the pornography business?
It is nobody's case that the payment processing industry does not have a role in society, either. Large New Age companies like Cisco and Google were initially funded and started using credit cards, going through the same payment processing industry which approved the credits in the first case. Likewise, in its role as a counter to counterfeit currency, this industry is unbeatable.
The issue here, in its simplicity, is this - when will India run its own payment processing industry (in India) especially for pure domestic transactions?
And what is the delay about?
(This is the second part of a three-part series)
The payment processing industry-I
We have seen how over 99% of plastic, Internet and electronic money transactions in India by Indians are purely domestic. When will we finally get into this industry?
Sure, State Bank of India has its own credit card. As do a variety of other banks, shops, airlines, oil companies — even the Indian Railways has one. But it is not really “their” card, it is simply something called “co-branding”, which works very well for everybody concerned, especially for the payment processing companies, who get access to everything that banks or all other commercial establishments hold sacred and would normally never share so easily.
Which are their client lists and business secrets. And a very nice way to pull the wool over our eyes, fooling us into thinking that it is our own Indian card. Something like versions of history taught telling us that the British built the railway network for the benefit of the natives — while actually the broad gauge lines were laid out largely to ensure better movements of troops and cargo — while the rest of the country got the metre and narrow gauge lines, or none at all.
“But an India card will not work abroad.” How many times have you heard this? This statement, however, is incorrect. Just like your mobile phone service provider has tie-ups abroad now, with foreign networks falling over backwards to service the travelling Indian public, so also will interface work in the payment processing industry. Certainly, there will be resistance in the beginning — recall, for example, how difficult it was in the beginning to get the world to accept that technology made in India was not just cheaper, but often also better.
Likewise, the real fear that the established payment processing companies in the US have is that any real Indian competition will simply be far better. Because, most of that technology is already made in India. There is not a single mid-sized or large technology company in India not doing work for some element or part of this industry, so expect voices of protest from those lobbies, too — after all, why does the otherwise flag-waving NASSCOM keep so quiet about this subject?
“This is a very complex business, and needs specialised providers.” If it was about making airplanes, one could understand. But the payment processing industry is about as complex as another processing industry, say, the jam and pickle processed food industry. The raw material is all there, available off-the-shelf or from local vendors — who have handled bigger projects like elections and railways. The technology is truly as simple as jam. The networks already exist, and increasingly are largely secure over the Internet — and can be retained within the Indian end of the Internet cloud, too. In fact, this single move can also strengthen the approach towards an ‘Indian Internet’. The customer base is of course also all there, present and accounted for and growing at a rate unseen anywhere else in the world, and will certainly move towards something that will be cheaper and better.
Only thing left is that somebody has to take the plunge — and soon. Once again, draw a parallel, how efficient and cheap the Indian telecom industry is compared to the Western world’s telecom service providers? Despite all the fuss and song and dance about bandwidth and regulatory bodies — can we imagine what things would have been like if Ma Bell and AT&T were the companies calling the shots in India?
It is not this article’s role to try and advise the Reserve Bank of India on what needs to be done. There are certainly people who know better, and who already have this on their mission statements as well as list of things to do, and are probably addressing issues in ways unknown to the general public. We can only wish them well, and hope that they also agree that we are all still loyal to our countries, and not to corporates. As the salesman from the movie Network said, “There are no countries anymore, only corporates.”
After all, in a country where it is murmured that even the present PM was allegedly branded a ‘Naxalite sympathiser’ by the Punjab Police about 30 years ago, it would be very easy to brand somebody as being ‘anti-national’ for daring to suggest something that would be portrayed as slowing down the growth in India’s economy. Which is what some segments of the payment processing and banking industry, as it exists in India, have said and continue to say today.
But, the fact remains, the sooner this is done, the better. It is not difficult to imagine a day and age when using plastic provides the end-users — merchants as well as customers — a benefit over using cash. After all, the cost of handling paper money is something that most people forget — and that benefit needs to go downstream to people not using paper money.
Which, apparently, is something not too many people have factored in as yet. Because none of us are told the true cost of printing and using paper currency in India.
Among other things, the introduction of the Goods and Service Tax (GST) is going to speed up commerce within the country like never before. Across the country, manufacturing and consuming, as well as distributing and retailing capabilities, are being notched up at a rate which is amazing and currently visible only to those actually supplying equipment and technology to them. From the motoring hat that I wear, it is now increasingly evident that the country is moving towards an amazing leap forward as far as the small truck and small
quasi-public transport sector is concerned, both of which factors (GST and transport revolution) will increase by multiples the amount of money transacted.
Another anecdotal example — a particular religious organisation, headed by a very street-smart and television-savvy leader, is relentlessly building an empire of health foods, both processed as well as fresh. In addition, a series of healthy beverages — carbonated as well as otherwise — are way ahead of the development phase. For all these, and more, the manufacturing, labelling, marketing, distribution and cash management network is coming up very rapidly. Analysis on time taken between money collected at the retail counter till the time it hits the manufacturers’ bank is on a level which even the MNCs have not matched — and the better benchmark is the Indian Railways.
The big issue here is about how long the existing payment processors (a) keep the money with them and (b) how much they charge. The thinking here is that (a) the money should be credited to their bank as soon as the sale is rung up at the retail outlet and (b) the processor should give them a small royalty amount for the privilege of doing their business and the visibility therein to their other related financial products.
Well, if large retail chains as well as small shops can now charge large MNCs not just for display space but also “technical charges” for entering products into their billing software, then this is not a far-fetched idea either.
There is no denying the simple fact that the Indian economy and nation needs its own payment processing industry, just as it needs its own armed forces, external policies, postal systems and much more. Just because India was a comparatively late entrant to this system does not mean it has to depend on external providers for the rest of history, and pay royalties by way of transaction costs forever. In some ways, its own payment processing industry is about as important as its own armed forces — such is the nature of the business. This is overdue, if we have any self-respect as a nation, and there is no argument about this simple fact. India Card for domestic customers should have been launched yesterday.
But more importantly, if India as a nation is to stand tall amongst others, then it needs to start providing for how to take India Card international. And very soon. It is not just a question of self-respect, self-confidence, self-esteem and self-benefit as a nation. It is, simply, our due, as Indians, from our government. In the old days, people carried their national flags with them, and waved them whenever required. Now, all of us carry plastic, and we need to see more than a symbolic symbol denoting the Indian rupee when we travel.
The business model for an Indian payment processing industry is unarguable.
(This is the concluding part of the three-part series).