The payment processing industry-I

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. ""

http://rbidocs.rbi.org.in/rdocs/PublicationReport/Pdfs/VIS01092009.pdf
 
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:

http://caps.fool.com/Blogs/total-systems-services-the/347496

"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).
 

Comments
malq
10 years ago
Some of you may enjoy reading and commenting on a recent article . .

http://moneylife.in/article/counterfeit-...

thanks/VM
Viswanath iyer
1 decade ago
Excellent story. Very illuminating. I'm beginning to like your moneylife site better than most business journals and dailies. Very perceptive panel of writers with minimum jargonese.
V Malik
Replied to Viswanath iyer comment 1 decade ago
Thank you for your kind words, Viswanath, drop by oftener and do continue to let us have your views too.
gopi
1 decade ago
If Govt. of India CLERKS have their way - very soon Cheque too will be banned and only BARTER of Food Grains, Clothes will be allowed - cash too will be banned.

Back to 12th Century.

Electronic Transfer - IS MUCH BETTER - easier to Track.
Why Cheques?
Jingo
1 decade ago
HI Veeresh,

Well written articles. I completely agree with them.

As people born in independent India, all of us are entitled to an India Card. After all plastic is more important than roti, kapdaa or makaan or even jobs for that matter.
In fact I think this single minded pursuit of driving the foreigners out of this country is so important that RBI should drop the pretence of controlling inflation rate in the country (they dont do a good job of it anyway, do they?). They should focus their best people in creating the payments infrastructure by which the 50 million odd people in this country of 1.2 BN can take pride that their transactions were done on an India Card on Indian infrastructure without any of those cruel and thoughtless and cheats read: (foreigners) knowing about it. How splendid!!
Also Pranab da would do better to tax this industry, including banks, at say 98% (Indira Gandhi last levied such tax rates, and we all know what a yeoman service) she did for the entire country. How dare they fare to the gullible Indian public plastics which carried mostly four letter words(Visa), and Master(how I am sure most Indians hate this term, reminds me of masterji who used to beat us up with a wooden ruler anytime he felt like)?

American Express ki to baat hi nahi karte hain, uske to naam mein hi American hain! Ram, Ram, Ram, Ram!!

So you started this company which somehow merged with TSys, right? I am sure after you might have received some USD(which you would have promptly converted to Indian currency), you would have felt very bad at having to sell your company to a foreign entity? Is that the way it panned out? Maybe you can clarify in your very well written prose in the next article. But, why am I getting personal here. Maybe you can get Moneylife to delete this article.

The more I read about you and Infonox, the more I feel like you are Steve Jobs (sorry, couldnt think of an Indian example). What a star turn he has done for Apple after having been thrown out of the very company he founded. Aah, now to think that you too can come back from, pardon the use of the phrase, almost the dead, and take your new start up to heights never seen before till maybe Mr Ambani(he seems keen to buy the entire country, but he is Indian, and he is entitled to own India, if he so wishes) comes over for coffee and buys your company out. Smart one, ehh!!

I wonder why then we dont stop all foreign branded laptops to be sold here. In fact I am sure China is snooping by way of some chip in all the laptops in the country by which any data, article, information stored anywhere gets passed on to a China server in the dead of the night. Umm, maybe you can replace China with US. After all most laptop brands also are in US, and maybe in one single area, no.. not Georgia, but whats it .. aah.. Seattle??

Also we should not allow foreign airliners or ships to ferry Indians. Only India made aircrafts and that too, made by the Government of India (is there an RBI equivalent there?) would be allowed to ferry between domestic flights. Why should I fly an Airbus or Boeing to fly from Mumbai to Delhi, isnt it? Be Indian, fly Indian.

The same logic should be applied (once again) to Coke and Pepsi. Ramesh Chauhan should be handed over reins of both companies' Indian operations. Only Thums up would sell till another Cauhan (no, not Amitabh from Agneepath) comes up with a brilliant formulation to mix langdaa aam with lembu paani.

You know where this article is going, right?

Now to some serious talk. I believe free competition should be there in every space possible. Am not sure about TSys, but companies like Visa, MasterCard were owned by Banks till a few years ago. I know that Indian banks got shares in these companies free of cost, and they made huge profits by selling then post listing. So, there goes your fears of these companies being held in some God forsaken tax haven. Sorry, I am slipping into that mode again. Why should the Indian bureaucracy, politicians, businessmen, keep their black money outside India. We should provide them a safe haven here itself. Maybe we can carve out a piece of MP (Central India, hence accessible to all), close to Indore and mark it as Kaala Paani, err, Paisa. No tax would ever be levied on any money which is kept in that place. Ugh, I know its getting boring. Didnt count the number of words in all your three articles combined!!

So, when as Mr Gee Vee ji pointed out, when RBI comes out and gives diktat to banks that all ATM transactions are to be routed through NPCI or NFS or whatever this entity is called, its a perfect case for the Competition Commission of India to wake up and question the regulator about what its doing and why? Do you know that the ATM charges now being demanded from Banks by this entity are higher than at least one payment association brand? So, whats RBI trying to do - replace a duopoly with a monopoly?

Or maybe you are hopeful that once NPCI comes in and fails, and by that time Visa/MasterCard/Amex would be packed off, your new company (planning to be in payments, veeresh?) can come in and provide a brilliant solution at a really. really low cost?

I think we should recall the likes of Ms Indira Nooyi (Pepsi CEO), Mr. Ajay Banga(Mastercard CEO), Mr Kal Penn (Hollywood actor) - let Shyam "Sixth Sense" guy be there. I think they deserve him). They should come back to the country and create companies here under the aegis of the revered Indian Government and its honest to the core bureaucracy.

I eman, I frankly dont care, if more than 50% of India still does not have access to an India made toilet to relieve themselves. As long as they are paying using an instrument which does the entire thing in India, I am fine!! And so are you!! Right!!

Well written Veeresh, well written!! Wonder when the Government of India will nationalize this industry all over again!! After all why should we be behind China in everything.

Regards,

Jingo
gyanesh varma
Replied to Jingo comment 1 decade ago
Thank you Jingo.
V Malik
Replied to gyanesh varma comment 1 decade ago
Is Jingo also with MasterCard, like you, "Gyanesh"?
gyanesh varma
Replied to V Malik comment 1 decade ago
Another unfounded allegation Veeresh !!
V Malik
Replied to gyanesh varma comment 1 decade ago
What's unfounded, "Gyanesh", please?
Jingo
Replied to V Malik comment 1 decade ago
Just to make matters clear here. I dont work with the payment associations, but like you or any other person in the country, I have my interests in the well being of the Payments infrastructure because I believe that a robust payment mechanism can lead to the uprooting of a lot of ills plaguing this country. Imagine, if we dont need to pay cash anywhere - all we do is flash a card, or mobile phone, and the payment is made for a bill of say a few rupees or a few lacs. Imagine if no currency notes are required (no fear of counterfeit)!!
Adoption of electronic payments can lead to the death of the black economy which probably is still more than 50 percent of this country's economy. Imagine if all that money were to come into play, what can be the rate of economic growth. Its a great idea. But no, our regulators dont want to do that. More on that later.
V Malik
Replied to Jingo comment 1 decade ago
Thank you for your latest email. Please also read my 3-part series on counterfeit currency at moneylife.

I disagree vehemently that an electronic payment system will somehow miraculously eliminate black economy anywhere in the world, especially if the entities behind these electronic payment systems are the same as those behind casinos, narcotics, geo-politics, arms trade and the rest of the usual suspects.

Electronic payment systems as they are emerging in the recent past have to be controlled by the central banks and national regulators, otherwise the economy of a "country" will soon be directly linked to that of the corporations behind the payment systems.

Privatisation is not a cure for all the ills of an economy or a society, and the payment processing systems of any country are as important as the armed forces or elections. Imagine handing over the electronic data and other functions of these two pillars to unknown foreign entities?\\\

Humbly submitted.
Jingo
Replied to V Malik comment 1 decade ago
I agree with you. Same goes for our telephone networks(broadband, voice, et al), banking, mutual funds, insurance. I have not for once denied that regulations and regulators are important. Have competition in the various sectors of the economy and have the same rules apply to all.
Is that what the regulators here have been able to do consistently? Look at the latest fiasco being played out in the IRDA-SEBI skirmish. The way finance ministry came out with the ordinance asking SEBI to stay out of ULIP was totally contradictory of what the finance minister uttered in one of his industry appearances in Hyderabad earlier.
The mobile industry similarly is going through the pangs due to the various policy flip flops done by the Telecom ministry and the regulators including DoT. While as a customer, some of us might be happy to see lower bills of something, for a change, but the industry's ability to innovate and invest in growth and better services gets curtailed if the economic return is artificially suppressed.
Same might be the case in banking due to the incessant interference of the regulator, RBI, in their workings. Some of it might be good for the customers and the industry, but not all their decisions, actions, guidances. At the cost of repeating myself, its far more important for RBI to control runaway inflation, than to decide how much fees banks should charge consumers for demand drafts, remittances, outstantion cheque clearing, and the like.There is enough competition in the banking industry for the consumers to sort it out on their own. They should definitely focus on ensuring that the quality of service imparted by banks is of a high order, but do they do need in a meaningful manner? I dont think so. And I think Sucheta also doesnt think so. I agree with her when she says that RBI should levy punitive damages on banks for poor service standards.

I dont think the consumers in India need regulators to decide whats good for them. Whats needed is of course good regualtory environment so that no one entity can take the consumers, companies and the nation for a song.

Let me repeat here again that the companies you are targeting in your articles are owned for the most part by banks themselves. So your incessant insinuations or comparisons with undesirable elements is over the top!!
V Malik
Replied to Jingo comment 1 decade ago
Thanks, Jingo - and your last para on my submissions on MasterCard/AmEx/Visa and First Data/TSYS and similar - sure they are all owned by banks or associations of banks or have majority share-holding from banks. But I stand by what I say - that the major focus lately is to merge and participate in the new economic order which is most certainly about "verticals" like gaming, narcotics, body part trade and the rest of it.

But even that is not the big issue here.

The big issue is the effective control these companies already have on the economies of countries where they are allowed free rein.

Which is why it needs to be the RBI which hopefully takes steps. And having a largely domestic payment processor with an Indian flag on it is as essential as having armed forces, foreign policy and similar also with an Indian flag.

Just my two paise worth. Spent too much of my life being told that what MNCs do is the best for us. And these guys are the new colonials/MNCs.
V Malik
Replied to Jingo comment 1 decade ago
Jingo ji:- on one aspect, a quick response - I don't think I have at any stage implied or suggested that foreigners should leave India or cease doing business here.

But.

a) While they are here, they need to work within the Indian environment. Laws, social mores, accounting, the works. Please use your undoubtedly excellent skills to get Union Carbide back if possible. We may have made a mistake in the old days, but so what?

b) Equivalent level playing fields need to be provided for Indians in their countries - and here again, I will certainly gladly point you chapter and verse to the history of protectionism that the free economies continue to practice. Bilateral comparisions are one example - this subject is well researched at pretty much any decent chamber of commerce library, and now online too.

c) I wonder why the biggest British delegation is in Delhi right now, if India is such a terrible place, as you try to portray?

Have a nice day.

VM

VMalik
Replied to Jingo comment 1 decade ago
Dear Jingo,

Thank you for your long comment, where most of your questions have already been answered by you. Increasingly Gandhiji's comments come to mind, but that's for later.

Some responses, but for now only, as they say, I got to do my Indian yoga, ttax-free.

a) On toilets, valid point, but there are improvements. Slow but steady. Visit Churchgate, readup about Sulabh, get into some rural areas where things are improving.

b) No, I don't think I am getting into payments, it is more enjoyable outside looking in while I smoke my banana. Yes, all converted and tax paid, Indian rupees.

c) On Visa/MasterCard/AmEx and the rest of the American banking industry, I guess we can wait for Elizabeth Warren to do the talking and get replies - on behalf of the American government and American people. They usually dont respond to the rest of the world. We've all seen the wonders that the American banking system, courtesy Visa/MC/AmEx et al, have done for the American public. We do need to keep a check on that in India.

d) Barring snide oneliners in the media, I have yet to see even one formal complaint by one foreign company about corruption in the Indian bureacracy or other pillars of Government. Matter of fact, view here is that it is the foreign entities that actively promote and subscribe to this, as it gives them an upper hand. Union Carbide, Bofors, VW, Siemens, Pepsi-Coke and ofcoirse our very own payment processors and purveyors of plastic, Visa/MC/AmEx. And when it doesn't work, THEN they cry, like babies. That's jingoistic.

e) As far as the CCI is concerned, there are older issues, and as I have mentioned before - why don't we start with the venerable Jones Act in the US impacting seaborne trade, it happens to pre-date plastic money and could be resolved first?

Rest later/best/Veeresh

Gee Vee
Replied to VMalik comment 1 decade ago
"No, I don't think I am getting into payments, it is more enjoyable outside looking in while I smoke my banana".

Ha.. ha ....

Of course it is far more enjoyable (easier) to stand outside and knock the people doing the work than to be a spectator. Doing something requires effort and that is hard work, is it not ?
V malik
Replied to Gee Vee comment 1 decade ago
nm
V Malik
Replied to Gee Vee comment 1 decade ago
nm
anil
1 decade ago
Disagree with Gee Vee:
Just because these companies built the infrastructure, does it mean they should make huge profits till perpetuity ? Should only Tata make steel, only Birlas should make cement ? This is a rather silly argument.
About the 'surprise', we would surely like to be surprised by the 'little' profits they make! Are these companies willing to declare their India-specific financials ? Thus far they have not shown any such inclination.
V Malik
Replied to anil comment 1 decade ago
Thank you, Anil, for your comments. Let us hope GeeVee provides us with his response here.

rgds/VM
Gee Vee
Replied to V Malik comment 1 decade ago
Anil,
No one suggested that those who built the infrastructure should continue to make profits in perpetuity. By all means others can come in and compete for that profit but don't for heaven's sakes demonise the very people who created the industry that you now want to see replicated in India. Create a level playing field in which the old and the new can compete on equal terms.

As for the 'surprise', rest assured, you will get it one day. You just need to be patient.
V Malik
Replied to Gee Vee comment 1 decade ago
Level Playing Fields need to be level on all sides, not just in India, Robert Clive came up the Hooghly long ago and we are not that stupid anymore.

As I have said so often before - take a look at the Jones Act in the US and tell me about level playing fields there, and then next, open the US financial industry to Indian companies and we are not even talking as yet about the outright bullying done by the free countries as far as immigration is concerned.

Uncle Tom and Opium War days are over, why don't people get it, even in their subsidiary cubbyholes, please?
Gee Vee
1 decade ago
It is sad to see that as someone who claims to be from the industry, you have not presented a balanced view of the current situation with electronic retail payments in India. You fail to acknowledge that the entire concept of paying by card and the infrastructure surrounding it has been built by these very organisations that you choose to vilify. Of course, they are not charities. So, they are entitled to profit from their efforts. Remember, there is competition to keep prices in check. So, the notion that any organisation can make supernormal profits in a free market like India is fundamentally flawed. You will be surprised to know how little these companies make net of their revenues that they investment back into the market.

You also accuse these businesses of being secretive. These are B-2-B businesses. How many B-2-B businesses do you know of who publish details of their pricing? Perhaps you would care to reflect that in a B-2-B business, unlike in consumer businesses where you have MRP, the commercial terms of each deal are unique and confidential between the two organisations.

As for deploying a domestic switch in India, of course anyone can for technology is now cheap, especially in India. Try however to get transactions through it without a trusted, ubiquitous brand that gives the merchant and the consumer the confidence that the system will work and the challenge will become apparent to you. Building a brand takes time, effort and money and those who benefit from that brand have to pay for it. That is how free markets work. In your article, you do not even mention the value of the brand in enabling these transactions. Customers and merchants participate in the system because they trust the brands they see on the stickers that you so derisorily talk about as having been deployed in ATMs and in stores.

You are urging the regulator to do something about these companies by setting up domestic competition. Of course he is. That is the gensis of NPCI and NFS. There is also a de-facto mandate that banks must switch all of their ATM transactions through this switch. That such interference in free market competition is introducing market inefficiencies is visible from the fact that banks today are paying more to NFS than they would have by processing through one of the other switches that are operating in India (there are many switches in the ATM switching business). Fact of the matter is that a regulator should be just that and not interfere in free market competition. Otherwise the resulting lack of competition will lead to lack of investment into the industry, will very quickly lead to lethargy and obsolescence. The case of the auto industry in India until the mid-80s is a case in point where foreign players were kept out by legislation and we had to live with Ambassador and Premier cars for 35 years. Is this what you want for the payments business in India?

Finally, let me correct your misunderstanding that MasterCard and Visa get a share of the costs that the merchant pays to his bank. That is siimply not true. The costs paid by the merchant are shared completely between the merchant's bank and the cardholder's bank.

If you really feel strongly about the electronification of payment systems in India, you should be urging the regulator to focus his attentions on expanding electronic payments into the hinterlands where they are non-existent today. Rather than attack the so called 'foreign' incumbents, you should be urging the regulator to work with them to ensure that their efforts leverage and benefit from the incumbents' domestic experience of almost 30 years to expand the benefits of electronic payments to those who do not have it today (that is 95 + % of our population) rather than replace them and expend energies on giving 'so called swadeshi' electronic payments to the small minority who already have the benefit, albeit from a foreign company.
V Malik
Replied to Gee Vee comment 1 decade ago
Dear GeeVee - here's just one example of how the duopoly believes in a free market.

rgds/Veeresh


http://www.ft.com/cms/s/0/1fd2e948-6ec8-11df-ad16-00144feabdc0.html?ftcamp=rss
Gyanesh Varma
Replied to V Malik comment 1 decade ago
Notice that the article mentions how China forces CUP's monopoly within its borders in violation of its WTO commitments and yet CUP now operates freely in 90 countries. Visa is protesting because banks are violating the terms of the agreement that they have signed with Visa.
V Malik
Replied to Gyanesh Varma comment 1 decade ago
There are mechanisms within WTO to resolve such differences, and there are different points of view on monopolies within borders, especially to contain things like dumping. Visa has a right to protest, CUP has a right to respond, and we should await a resolution instead of threatening to switch off on the 1st of August as Visa has done.
Gyanesh Varma
Replied to V Malik comment 1 decade ago
WTO processes only work when both parties agree to play by the rules. China is a law unto itself and blatantly violates its international commitments not just in WTO but in many places. As Indians, we have seen China at very close quarters and watched helplessly as they have annexed Tibet and is now annihilating the Tibetan culture. Now it has its sights set on on Arunachal too and all we make is some feeble diplomatic noises.

The only way to get China to comply is to hit them where it hurts and I admire Visa for the courage it has demonstrated in taking CUP on head-on.
V Malik
Replied to Gyanesh Varma comment 1 decade ago
WTO is blatantly violated by every Nation that I can think of. Yes, we have seen China in Tibet. We have also seen USA in Chagos/Diego/BIOT. We see UK in Cyprus/Ireland/ Falkands/Gibraltar. We see Spain in the Andelusian Mountains/Ceuta/Tenerife. There are disputes all over the world.

China has the self-integrity and strength to take HongKong back. I know Arunachal very well, and that's not going to China, so you can relax on the panic.

As for VISA vs CUP in China, as I said before, the era of gunboat diplomacy and Opium Wars are over.

But here the debate is about whether India should have IndiaCard or not - and why are MC/Visa resisting, when by rights it should be a fair competition as envisaged by, say, WTO?

Thanks/VM

V Malik
Replied to V Malik comment 1 decade ago
So while my India issued Mastercard / Visa / AmEx are blocked in Iran due to instructions from USA, the Chinese seem to not have any issues in going ahead.

http://en.chinaunionpay.com/news/newsroo...

What do you have to say to that, Gyanesh, which legal compliance is MC / Visa / AmEx talking about now?
V Malik
Replied to Gee Vee comment 1 decade ago
Dear Gee Vee ji,

Thank you for your detailed and considered response. In a hurry, will respond at length later, but briefly:-

1) I dsagree with what you state about low profits. I am aware of the fairly vast profits that the duopoly make, as well as others associated in the same business - and these are open domain as well as something that the regulators in other countries are trying to curb too. China already there with CUP, Russia soon to follow, EU and Japan will be there soon, though MONNET seems stuck. I have great hopes from South Korea, too.

2) I disagree that the financial sector has a right to be secretive about everything, especially post-facto.

3) A domestic switch in India is now probably more feasible than CUP is in China. What brand value are you talking about stronger than multiple choices in India? And free markets work across borders - not by some sort of Opium War 2.0 that you seem to be suggesting, wherein our markets are free for "them", but their markets are not free for "us".

4) The automobile industry in India has been mis-represented by you. The socialist years are long gone. India's growth internationally in this business has been on the back of a strong domestic manufacturing base which also consistently fought against rampant import of cheaper new and second hand vehicles. I am suggesting something like that in the payment processing industry in India too.

5) I am really unwilling to accept that all costs are shared only between merchant's and cardholder's banks. Merchant's costs are only one aspect - there are a host of other "benefits" and I am sure you know what they are, too - unless you are trying to say that the duopoly is here for charity.

More soon, especially on your last paragraph! But it does appear to me as though the very thought that Indians want to control their own economy does not appeal to you. If the foreign payment processing companies wanted to go to the rural areas, they would have done so, but they havent.

Would appreicate a real name, also, if possible?

Thanks/Veeresh Malik
Gyanesh Varma
Replied to V Malik comment 1 decade ago
Veeresh,
Gee Vee is my pen name. Anyway now you have a real name too.

1) For every CUP that is coming up, you will find that there has been a domestic payment scheme in the past that has been set up and folded up within a few years, e.g. Switch in the UK and Banccard in Australia. There are many more examples.

2) Every business deal is signed on the basis of commercial confidence, not just the Financial Sector. I am not sure what you mean by post-facto.

3) What can I say if you do not understand the value of a brand for the consumer? There are dozens of phones available in India today and yet Nokia dominates year after year ..... can you explain why if it is not for the brand and what is stands for?

There is no opium war - India has many more protectionist barriers than most developed economies. We can hardly point fingers at the others.

4) The auto industry could only grow to what it is today once the license raj and protectionist barriers were removed. Why then are you suggesting protectionist barriers in this industry. Besides, it is precisely because they fought against the import of products that they would not have been able to compete with that car prices in India are so high. You think by keeping international competition out, prices can come down in any industry?

5) What I am saying is that what the merchant pays his bank as merchant commission is shared completely between his bank and the cardholder's bank. I am not sure what "benefits" you are referring to. Kindly elaborate.

Of course every country has a right to control its own economy but that does not mean you have to build protectionist barriers. A strong system of regulation that enforces the rules consistenty across all players to create a level playing field is all you need. Otherwise, you will get the less able and less efficient players thriving in the market at the cost of the more efficient ones and the only loser in such a situation is the end consumer.

I will wait to hear your detailed response
V Malik
Replied to Gyanesh Varma comment 1 decade ago
Gyanesh ji:-

1) Folded up, taken over, absorbed, shot down, destroyed, merged, acquired, this goes on. Some will succeed, and I point you to CUP again.

2) By post-facto I mean that here in India we are subject to Indian laws, especially corporate, and those are clear on disclosures. I don;t want to get into the depths of GAAP or SoX, ROC or even the RTI Act as applied to Public Authorities, or other statutories, but you do know what I mean.

3) "India has more protectionist barriers" is a statement that if said often enough is believed, especially when said in India, by Indians. I learnt my lesson as a seafarer when that bartion of free & open trade, the US, threw the Jones Act at us in shipping. Case dismissed, mangoes for motorcycles, too.

4) The automobile industry is really my domain, and I would gladly debate this, and have done so. Simple question - would the Indian automobile industry have done better if we had permitted free imports of new and second hand vehicles - which is what the developed country wanted us to do?

5) The "benefits" are elaborated in part 2 and 3, and apart from fiduciary benefits to MC & Visa, include economic issues which I have spelt out in parts 2 and 3 - and some more.

6) Level playing fields are not only one way, but are also bilateral - but truth is that all nations try to tilt the field as well as change goalposts. India is just doing it better lately.

7) Why are we assuming that an Indian competitor to the duopoly will not be more efficient - and if they are convinced the Indian competition will not be efficient, then why are they resisting?

Also, are these your personal views, please, or are they from an organisation in this line of work?

Thanks/Veeresh Malik
Gyanesh Varma
Replied to V Malik comment 1 decade ago
These are very much my personal views.

1) No one will complain if CUP succeeds in an environment of free competition. What they are doing now is like saying I will have my cake and I will have yours too !!

2) All entities in this space will have to comply with local law and to the best of my knowledge they do. The confidentiality we are talking about is about placing this information in the public domain.

3) I have spent a very large part of my adult life outside India before I chose to return here some years ago. I assure you, it takes a lot to get the developed economies to put up the kind of barriers you refer to and it is precisely because they only do it occassionally that it causes outrage. With India, they are par for the course. A fact of life.

4) The auto industry is an area of interest for me too. I maintain that If free imports were to be permitted, consumers will benefit from access to a wider choice of better quality cars than are available in India today. What we get in India are stripped down versions, e.g. no airbags when 6 airbags are the norm in most cars in developed economies. Who is the loser? The Indian consumer of course.

6) Better for whom? Matter of opinion.

7) The incumbents are not resisting at all. Far from it. All they are asking for is the ability to compete with the Indian incumbent freely and let the best man win. That is not happening right now.

V Malik
Replied to Gyanesh Varma comment 1 decade ago
Dear Gyanesh,

I have worked very closely with the technology suppliers to the payment processing industry, in India and abroad, these are my views based on my observations and analysis. I am entitled to them.

It is my submission that the developed countries manage to disguise their protectionist and colonial methods better than others - they simply have had more practice.

MasterCard, Visa, AmEx, and others - their history speaks for truth - but in a changing world, the future hurts. Your arguments are along the lines of justifying monopolies which are simply not tenable or acceptable anymore.

Let us agree to differ. Humbly submitted.

veeresh malik
Gyanesh Varma
Replied to V Malik comment 1 decade ago
Dear Veeresh,
I have over a decade of working in different parts of the Payment Processing Industry around the world, not just with technology providers and my views too are based on what I have seen. In my view, your article is based in many places on an incorrect understanding of the way the industry operates and also makes many unfounded allegations. Just like you, I am entitled to my views too and the only way to end this debate is to agree to differ and let us leave it at that.

Gyanesh Varma
V Malik
Replied to Gyanesh Varma comment 1 decade ago
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Sachin Malde
1 decade ago
Hi. Your articles are informative and cover very wide-ranging topics. Thanks for the same. How do the charges being levied on the Indian merchants and Banks compare with those paid by the developed countries? Secondly, what are the entry barriers which have prevented RBI / Bank consortiums to setup India's own payment processing company? Isn't it just about underpricing and coaxing the merchant to replace the existing VISA / MasterCard POS machine, once the switch and software are in place?
V Malik
Replied to Sachin Malde comment 1 decade ago
Thank you for writing in, Sachin. Some parts of your questions are answered in the articles as they are put up.

a) Currently the charges levied on merchants are very high in developing countries, when compared to those charged in developing countries.

b) I think RBI is still working on the IndiaCard option, and no idea why there are delays, some statements are up on the RBI website but not much information here.

c) It is more about sharing the benefits of paperless monetary transactions with merchants AND consumers, instead of levying extra charges on them.

I foresee a situation where the payment processors shall provide merchants an incentive for transactions carried out on their networks, instead of merchants paying commissions, and that will happen the day the monopoly of these few payment processors in the US is challenged. Consumer will be on 100/100 kind of deals, though she already gets points/miles/incentives to use plastic . . .

I hope this response helps.
Sachin Malde
Replied to V Malik comment 1 decade ago
Thanks for the prompt reply, Veeresh. Looking forward to the next part in the series.
Mahesh
1 decade ago
Hi,

Nice article. But I just want to know the exact dangers of it. Also, its not just us, but many other countries that are using these services (this in no way means that we have to blindly follow it.). Was such concern raised by any of these countries.. of which many are developed? Did it pose to be a threat to any of them.

Once again, thank you for the useful article.
V Malik
Replied to Mahesh comment 1 decade ago
Thanks for writing in, Mahesh, and I think I have answered your questions in the parts that will soon follow.

European Union (EU) and Japan did try to break out. South Korea is currently trying to do so. China is yet to adopt plastic as widely as India.

The danger is similar to handing over your armed forces and defence to a foreign corporate commercial entity. Have tried to explain that in the next articles.

best/vm
Mahesh
Replied to V Malik comment 1 decade ago
Thanks for the quick reply and the information Veeresh. I look forward to your next article.
-Mahesh
V Malik
Replied to Mahesh comment 1 decade ago
On China, I stand corrected, I was not aware of the giant steps that CUP (China Union Pay) have taken lately, and why that makes the American duopoly even more worried about the scene in India.
Mahesh
Replied to V Malik comment 1 decade ago
But if you look at TSS results, they have entered into a joint venture with China Union Pay and also signed agreements to provide processing services to many Chinese and Hong Kong based banks.
-Mahesh
V Malik
Replied to Mahesh comment 1 decade ago
TSS is in China with CUP on very Chinese terms and conditions. That's what I am trying to get across. Here in India we must have control over such a vital aspect of our economy - and not leave it to entities which will run a repeat of the American economic fiasco.
Narendra Doshi
1 decade ago
YES, something INDIAN MUST get done. The intellectual concerned people & our INDUSTRY HOUSES need to PUT THEIR THINKING hats to ACT.
V Malik
Replied to Narendra Doshi comment 1 decade ago
The issue is simple - payment processing for domestic business needs to be carried out in India as an Indian activity - and for international business on bilateral / pari-passu or as an international activity - not controlled by just one country.
Satya
1 decade ago
Very informative article.

I would like to connect with Mr Veeresh. Please let me know his email id.

Thanks
Satya

V Malik
Replied to Satya comment 1 decade ago
Please feel free to write in c/o MoneyLife, thanks.
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