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Sunday, May 19, 2019

Acceptance Development Fund (ADF) – Should it be restricted only to Card Infrastructure??

          Reserve Bank of India in its Payment and Settlement Systems in India: Vision – 2019-2021 document outlines the need for ADF to facilitate innovations in Digital transactions and reduce the cost for digital transaction acquirers.



QUOTE 

Creation of an Acceptance Development Fund (ADF) to subsidise acquirers for deploying PoS acceptance infrastructure in tier-3 to tier-6 centres. This would help in facilitating innovation and reducing cost of such transactions.
UNQUOTE

          The share of digital transactions in Tier 3 to Tier 6 centres in the overall financial transactions’ portfolio is less when compared to Tier 1 or Tier 2 centres.

          One of the reasons for the low share of digital transactions in Tier 3 to Tier 6 centres, is the acquirer’s reluctance to deploy the required infrastructure for digital transactions stating a long gestation period.

          Hence, the need for an ADF to speed up the infrastructure roll-out for Safe Digital Transactions.

          The concept of Acceptance Development Fund (ADF) was first mentioned by Reserve Bank of India in ‘Concept Paper on Card Acceptance Infrastructure’, released in  March 2016.

          This concept paper outlines the contours of the ADF i.e ADF Management, contribution to ADF, parameters to receive grants from ADF etc.

          The March 2016 concept paper mentions about ADF to strengthen Card Acceptance infrastructure.

In other countries, Mastercard and Visa - the two dominant card network players, are a major contributor to ADF, as cards constituted a major chunk of digital transactions.

 However, the main differentiation between India and other countries is UPI. UPI has no parallel anywhere else.

The launch of UPI (Unified Payment System) has shaken the world of digital transactions. Digital transactions are no longer restricted to Net banking or Debit cards. Now, UPI commands a growing share of digital transactions.  

          Today’s POS terminals support a wide variety of digital transaction channels i.e Credit Cards, Debit Cards, UPI, BharatQR

Pinelabs, Innoviti, Flipkart -  Couple of POS terminals which accept payments via UPI.

          The day’s of POS terminals supporting only Credit Cards or Debit Cards are getting over.

          A cursory reading of ADF in other countries shows that the ADF is heavily tilted towards POS terminals.

However, as the formation of ADF picks up speed, there may debates on the varieties of digital transaction channels which may require ADF support.

          The beauty of India’s digital transactions is that it comprises a large number of channels, each channel having its plus and minus points.

          Let us wait and watch for the ADF rollout.
           
Malaysia’s central bank to improve the payment infrastructure in the country, set up the Market Development Fund (MDF) in 2015, under which credit card scheme providers can contribute by channeling 0.1% of each payment card transaction.

          Acceptance Development Funds have been successfully deployed in several countries, including Indonesia and Poland too.
           




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