Technological advancement has facilitated to create multiple channels for e-commerce, allowing financial transactions from anywhere and anytime. We have seen tremendous growth of plastic cards replacing paper currency in various financial transactions. In fact the plastic card industry is growing fast. This is because of the fact that the use of these cards, also referred as plastic money, has been now growing even in rural belts and in geographically remote locations. But, for a small value consumer, cash is perhaps still today the most popular means of payment especially for small value consumer payments.

The pace at which these cards are being used in day to day financial transactions, has led to incredible growth in Point of Sale (PoS) terminals at various merchant establishments- be it a departmental store, medical shop, petrol pump or a restaurant. In fact, the efficient and productive use of the plastic cards, be it debit or credit cards, is directly dependent on the strong network of PoS machines. A point of sale system eliminates float, reduce credit risk, and require the merchant to keep less cash on hand. The POS system enables merchant to verify the availability of funds in a customer's account or his access to credit before completing the sale.

Remarkably, here the consumers are using debit cards more for PoS transactions, which is above 50 per cent of total PoS transactions. Reserve Bank of India data reveals that for the period between April 2008 and January 2009 there was a rise of 51.4% in the total value of Point-of-Sale (PoS) transactions through debit cards. The value of PoS transactions for credit cards during the period was just 17.4%.

Some days back one of my acquaintances faced a peculiar situation. During late evening hours he went to a departmental store to make some purchases. He offered his debit card for making the bill payment. Even as the departmental store was having a point of sale (PoS) machine in place, his card was not accepted by the merchant establishment due to some disorder in the machine. Since he was not carrying much cash to make payment of the bill, he rushed to a nearby ATM. But unfortunately, the ATM didn’t respond. This left him confused, but not for too long. Someone near the ATM location guided him to a shopkeeper, who was offering cash against debit as well as credit cards.

Desperately needing cash to make payment at the departmental store, he rushed to the shopkeeper and hesitantly asked about the cash facility against cards. His joy had no bounds when the reply was given in affirmative, but at the same time he was a bit surprised over this kind of facility.

Cash against credit or debit card at a merchant establishment sounds incredible. But it is true. The mechanism is simple. My acquaintance was asked to swipe the card for the amount he needed against some purchases of goods. Actually the shopkeeper didn’t handover him the goods but handed over him the value of these goods in cash. But, against some charges linked to the value of goods.

This kind of situation is not new. There are instances where cardholders get cash while swiping their card at a PoS terminal installed at a merchant establishment. Instead of getting goods, the cardholder is given the value of goods in cash by the merchant establishment against some charges. So the PoS machines are acting as ATMs in such situations.

Here it is worth mentioning that the Reserve Bank of India (RBI) has already allowed cash withdrawal from point of sale (POS) terminals using a debit card, but not credit cards. That is, RBI has now allowed the card holders to withdraw cash from various merchants accepting a debit card. However, such withdrawals have been limited to Rs. 1,000 per day per debit card. In simpler terms, the debit card holder would be able to withdraw cash even if he does not make any purchase from the shop / merchant establishment.

Reserve bank has its own logic behind the move. The number of PoS terminals accepting credit and debit cards is far higher than the number of ATMs. As on 31st May 2009, the number of ATMs in India is 44,857 and that of PoS terminals is 4,70,237. Therefore, the apex bank feels that by allowing cash withdrawals from such PoS terminals would provide a very convenient way for bank account holders to obtain cash.

The Reserve bank has already worked out the mechanism of withdrawing cash from a PoS terminal. This facility would be available to the debit card holder against a fee. Since, the Reserve Bank has given this permission only on July 22, 2009, it would take some time for the banks to get clearance from RBI and at the same time banks would need to update their technology before allowing their debit card holders to get cash at a Pos terminal. It is pertinent to mention that the reserve bank has asked the banks offering this facility shall have to put in place a proper customer redressal mechanism. Complaints in this regard will fall within the ambit of the Banking Ombudsman Scheme.

It is notable that banks are laying more emphasis to get customers to use debit cards. Earlier, they tried to wean customers away from branch transactions to automated teller machines, (ATMs). Banks have successfully forced their customers to migrate to the next stage of conducting cashless transactions at shops by swiping their debit cards, even their credit cards, at point-of sale (PoS) terminals. Now a stage has come where banks will be offering to convert plastic cards into real cash at PoS terminals.

Merchants should now prefer the PoS terminals, because documentation and back-end work is taken care of. Besides, debit card usage also helps avoid the problem of counterfeit notes that some of them face. Migrating from cash to ATM is to save cost and time. But moving from ATM to PoS means more convenience for the customer.

A merchant establishment having Point of Sale (PoS) machine, can add unimaginable advantages to its business. For the shopkeepers, the advantage of PoS transaction is getting the money credited to their accounts immediately. So, they don't have to worry about cash management. They also avoid the hassle of handling soiled notes. Besides, the conversion of plastic cards into real cash at PoS will be a new mode of income for them. So it is time for the merchant establishments here to review the benefits of installing a PoS at their outlet so. A scenario is in the offing here that when a customer will only prefer shopping at a merchant establishment having PoS terminal.

To be precise, given the competitive financial environment of 21st century, merchant establishments here have to join the bandwagon and provide cashless transaction service and conversion of plastic money into real cash facility to the customers and that is possible only through a Point of Sale machine.

(The views are of the author & not the institution he works for. Feedback at sajjadbazaz@greaterkashmir.com)

Lastupdate on : Sun, 21 Feb 2010 21:30:00 Makkah time
Lastupdate on : Sun, 21 Feb 2010 18:30:00 GMT
Lastupdate on : Mon, 22 Feb 2010 00:00:00 IST