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As a part of their digital payment initiative, the Government of India has set a target for the installation of 5.5 million point-of-sale (POS) machines by September 2017.
AP Hota, MD and CEO of NPCI recently said, “Now it is 2.5 (million), you can say. Another three million has to come. One million traditional PoS, one million QR code (-enabled PoS) and one million Aadhaar (-enabled PoS).” He added that the government also plans to assign bank-wise targets in order to meet the September deadline.

However, there is a problem.
A typical merchant onboarding process takes a couple of weeks from the point of acquiring to their merchant ID getting generated in the core system of the acquirer bank. The complications arise here as a merchant entity can be of different types; for each entity type, there is a different kind of KYC validation required. Unlike an individual, these entities do not have an Aadhaar-based mechanism to do API-based validations.
Most of the KYC process is manual, which along with verification takes a long time. This not only increases the time required for onboarding but also significantly increases the costs of acquiring and onboarding the merchant.
Lets see this from the cost perspective
In light of the recent regulations tightening the KYC norms, PPIs now require full KYC for their customer accounts. With the current manual processes in place, this will significantly increase the significantly increase onboarding cost, especially with smaller merchants with a low payment volume. The leading wallet players like Paytm (200 millionUsers), MobiKwik (45 million users) and Freecharge (10 million active users as of Nov’16) will now face a huge challenge ahead to conduct the full KYC of all their customer accounts.
This is one of the major reasons why acquirers (banks and PPIs likewise) focus on large merchants and do not find it viable to onboard the smaller merchants. Not only do they lose out on a significantly high share of customers in form of these small merchants, but also the increased cost of doing full KYC will impact their profit margins.
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