The National Payments Corporation of India (NPCI)
has finalized the commercial launch of the proposed India
card which would be a domestic alternative to the global payment
processing firms. MasterCard (
MA
) is the second largest global payment solutions company in the
world and provides a variety of services to support the credit,
debit and related card payments of over 24,000 financial
institutions globally and given the size of India, this could have
an impact on MasterCard's international transactions growth, which
we discuss below. Its main competitors are Visa (
V
),
American Express
(
AXP
) and
Discover Financial
(
DFS
).
Transaction processing is the major revenue source for
MasterCard and by our estimates constitutes about 32% of the
$293 Trefis price estimate for MasterCard's
stock
.
The Reserve Bank of India (RBI) in 2009, had asked the Indian
Bank Association to launch a non-profit payment solutions company
to meet the requirements of domestic banks. After almost 2 years of
planning, NPCI has finalized the name of the proposed card as Rupay
which will launch later this year. The Rupay will resemble China's
Union Pay which is the domestic real-time payment processing firm
for Chinese banks.
RBI in its vision paper on payment systems in India said that
the need for such a system arises from two major considerations: 1)
the absence of a domestic price setter has caused the Indian banks
to bear the high cost for affiliation with international card
associations, and 2) 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.
Electronic Payment Market in India
India has been one of the fastest growing countries for payment
cards in the Asia-Pacific region. According to the RBI, debit card
transactions in India rose 49% in January 2011 to reach Rs. 37
billion (approximately $830 million) from about Rs. 25 billion
($557 million) last year. The number of debit cards in use also
rose by 25% during this period. Credit card transactions also rose
28% in January 2011 compared to last year to about Rs 69 billion
($1.54 billion).
How is MasterCard Affected?
In our analysis of MasterCard, we estimate that the number of
transactions processed by MasterCard will grow from 22.6 billion in
2010 to about 56.8 billion by the end of our forecast period at a
compound annual growth rate of 14%. Much of this growth will come
from the Asia-Pacific region as consumers in this region are
only beginning to embrace widespread use of electronic
payment methods.
If India card Rupay gained popularity and other countries in the
Asia-Pacific region decide to follow suit, MasterCard's number of
transactions could only grow at a rate of lower rate than we
forecast. In a scenario where the number of transactions processed
by MasterCard would reach only 50 billion by the end our forecast
period and grow at a slower rate of around 12% annually, this would
cut our price estimate for MasterCard by about 5%.
See full analysis for MasterCard