Cash card transactions are much higher in India. Why?

This is my first post here. First of all, thanks for Alok for creating such a nice platform.

There are two types of e-commerce transactions on Internet. First, the consumer who makes the transaction on his behalf or family or for a friend and secondly an agent (ICT kiosks, Internet Cafes, etc) who completes the transaction on behalf of his customer.

Indian e-commerce industry minus IRCTC is almost like industry is still in infancy stage. So it is clear that insights from IRCTC would help us in understanding the e-commerce trends. Fortunately, every month, IRCTC publishes actual statistics on transactions with complete details on its website.

If you observe statistics of any month, at first you would wonder that cash card transactions are like one-third of total transactions (rest are credit or debit or netbanking). And in fact you find, cash card transactions growth rate is much higher than all other modes of payment. Then you would start feeling like, you have never heard of them anyone using it, but then how come such large number of transactions?

I used be working as IT Security consultant for payment card industry (now I work on rural services) and so I would like to you give you a detailed story behind this wonder. Business model of any cash-card company (ITZ Cash, Done Card, iCashcard) would give the reason behind it.

Platform: It is two sided. Cash-card companies just tie-up with numerous merchants/service providers (like telecom or ticketing etc). And later they start acquiring agents to use their technology platform. Typically these agents are: ICT Kiosks owners or Cyber cafes or computer education centers or the latest PCO/STD 2.0 etc.

Target Audience: Who all can’t goto a website and/or can’t pay through credit or debit card for remote payments. India has less than 50 million regular users of Internet and large number of people are outside of the formal banking channels. That gives you the reason for much higher number of transactions on cash-card mode. This indicates, those agents become the middlemen between the remote customer and the service provider.

Commission: Most times, cash-card companies get discount from the service providers (usually 3% to 5%), a portion of which would be passed to their agents (for example air ticketing works in this manner!). Otherwise, customer is charged (for example, IRCTC don’t give any commission to cash-card guys and so, agents would charge customers on top of the ticket cost).

Other revenues: Of course there could be a small percentage of direct consumers who would use the cash-card on web. But that is not what makes significant cash-flow for a cash-card company.

Future: So it is obvious that cash-card transactions would become much higher than credit or debit card transactions when cash card companies can acquire much more agents (in particular rural areas) along with more service providers (such as electricity/water distribution companies).

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Now comes the biggest disclosure: In fact, strength of any payment card system lies with the following three points.

1. They must tie up with as many merchants as possible.
2. Technology/process that makes the consumer to use the card for payment.
3. Card distribution should be efficient.

Now, how are the famous credit card companies (VISA or MasterCard) placed in the above points. Firstly, they are accepted with innumerous merchants. Secondly, consumer can use the card at merchant outlet or online or telephone or SMS or etc. Thirdly, Banks issue credit/debit cards to the consumers on behalf of VISA/Mastercard. Now coming to the costs of this ecosystem of digital payments is usually less than 5% of the value of the transactions (VISA, Banks, Merchants share this 5%). As the Mobile payments is getting matured, this value is getting closer to 3%.

Of course, companies involved in this payment ecosystem also have additional revenue through other value added services such as interest charged to the customer by providing them credit, etc.