Market Insight TM

How accepting cards can help

merchants increase revenues
Accepting payment cards can enable merchants to increase
their revenues, reduce cash handling costs and offer a better
shopping experience to customers. The rapid growth of
electronic payments, especially debit cards, offers major
opportunities for merchants as Amrish Rau, General Manager,
First Data India and ICICI Merchant Services, reports.

Cash transactions are costing merchants billions of additional

rupees to process, while at the same time exposing them to
higher fraud and security risks.

The Indian cards market is growing rapidly with 18 million

credit cards and 181 million debit cards in issue at the end of
Financial Year 2009-10 (*). Electronic payments have great
potential in India but there is a lack of understanding among
many consumers about the value of using cards. Some 50
percent of credit card accounts are dormant and 80 percent
of debit cards are not used at the point of sale. Indeed, there
are only an average 11 transactions per credit card – and one customer service, electronic payments enable merchants to
transaction per debit card – annually (**). maintain greater control of their business.

While this level of card use is in line with many other
emerging payments markets, merchants are missing out on
big opportunities to increase revenues and benefit from
accepting cards.
So what can merchants do to encourage the use of
payment cards? Among the key opportunities are educating
all stakeholders about the benefits of accepting payments and
enabling consumers to use their cards at the point of sale. It is
also important to fully understand the negative impact of cash
payments on merchants’ profitability.
The real cost of cash
The real cost of handling cash is often hidden. Reducing the
amount of cash used can benefit both merchants and the
wider economy. For example, it has been estimated that the
cost of cash to the Belgian economy, one of the most
advanced payments markets in Europe, is as much as 0.74%
of GDP annually (***).
Some of the key advantages of electronic payments are:
1. Increased sales: Cards enable consumers to make quicker
and easier payments. They can also help increase sales
as the cardholder does not need to have cash in order to
carry out the transaction. Accepting electronic payments
enables merchants to improve customer loyalty and thus
increase transaction volumes at the point of sale. As the
number of card transactions grows, merchants can also
take advantage of other marketing opportunities such as
rewards programmes to boost revenues and also target
new customers. For those merchants who enable
consumers to transact online, electronic payments open a
new revenue stream.
2. Better management of their business: Electronic
payments enable merchants to reduce costs and
administration associated with handling cash. They also
protect the merchants’ revenue streams by reducing fraud
and increasing the security of transactions.

At an individual merchant level, cash handling results in higher
risks of cash being stolen, time wasted in depositing cash to
the merchant’s bank account as well as a higher likelihood of
counterfeit transactions and poor customer experience.
Why take electronic payments?
Accepting electronic payments can provide significant benefits
to merchants. As well as increased security and better
3. Better customer service: Electronic payments offer
customers more flexible payment options - faster check
out times for customers and a more efficient way of
paying. Also, innovations such as Equated Monthly
Instalment (EMI) payments, allow consumers the ability to
purchase and take possession of larger ticket items using
an automated payment plan.
How accepting cards can help merchants increase revenues Market Insight
4. Paying by card gives consumers the option to make
impulse purchases, which can lead to higher spend at
merchants and increased transaction volumes.
Experience from other markets
The payments market in India is taking a similar growth path
to that of many other countries. Merchants and their banking
partners around the world are creating a wide variety of
marketing programmes to boost card transactions. Among
those that may be relevant to the Indian market are:
• Targeting of specific segments to boost card usage. The
youth market in many countries is already familiar with
payment card usage and happy to make payments
electronically. Accepting payment cards can help attract
more of the youth market, which is often one of the
highest users of electronic payments.
• Loyalty programmes can have a positive impact on
increasing cardholder spend. They are structured in
different ways but usually involve merchants or their
bank partners offering incentives to cardholders to
use cards at the point of sale. Programmes such as
in-store raffles or offering small prizes when cardholders
produce their POS receipt have been effective in
increasing transaction volumes in several Latin American
markets. Some POS-based loyalty programmes enable
cardholders to receive an instant reward on completing
a transaction, e.g. a voucher offering a discount on their
next purchase or a small gift.
In summary
Cash is still the dominant means of payment in India.
However, by not accepting cards or encouraging their use,
many merchants are missing out on significant opportunities
to both increase revenues and reduce costs. Experience in
other markets has shown that it is possible to stimulate card
usage through customer education and targeting customer
segments that would be most interested in using cards.
©2011 First Data Corporation. All trademarks, service marks and trade names referenced in this material are the propertive of their respective owners.
About the Author
B. Amrish Rau is General Manager, First Data India and ICICI Merchant
Services. In this role, he is responsible for leading and growing First
Data’s presence in India with executive management responsibility for
all of First Data’s payments services businesses including card issuing,
merchant alliance programs and ATM services.
About First Data
Around the world, every second of every day, First Data makes
payment transactions secure, fast and easy for merchants, financial
institutions and their customers. First Data leverages its vast product
portfolio and expertise to drive customer revenue and profitability.
Whether the choice of payment is by debit or credit card, gift card,
cheque or mobile phone, online or at the checkout counter, First Data
takes every opportunity to go beyond the transaction.
About ICICI Merchant Services
ICICI Merchant Services is different from other merchant acquirers in
India. We are an alliance between ICICI Bank, India’s largest private
sector bank, and First Data, a global leader in electronic commerce
and payment services. This enables us to deliver outstanding level of
reliability, innovative world class solutions with local expertise and
customer care.
Sources:
(*) Reserve Bank of India Bulletin, June 2010
(**) “Cashless payment system in India – a roadmap”,
Technical Report 2010, Indian Institute of Technology Bombay
(***) “Towards a more efficient use of payments instruments”,
De Grauwe/Rinaldi/van Caesslye – University of
Leuven, Belgium, 2006
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Amit Gidwani, ICICI Merchant Services by email at
Amit.Gidwani@firstdata.com.au or by phone
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