FinTech Tracker: In A World Of BHIM And UPI, MSwipe Is Betting On Tiny Card Swipe Machines 

When the government announced the sudden withdrawal of Rs 500 and Rs 1000 notes, merchants and banks rushed to try and acquire point of sale (PoS) machines so that they could continue to transact.

They hit upon two hurdles - the unavailability of these PoS machines in India and their cost. Since then the government (through the Union Budget) has tried to incentivize local production of such machines. Meanwhile the RBI has suggested a cut in fee or merchant discount rates (MDR) to draw more merchants towards non-cash payments.

MSwipe, a Mumbai-based hardware startup, says another solution is to popularize mobile PoS in India. MSwipe, which manufactures hardware devices that can convert any phone into a PoS terminal, claims this will reduce the cost of accepting payments through cards.

An Unlikely Beginning

MSwipe was started in 2012 by Manish Patel, a doctor by training. He chose not to practice medicine and instead went into wine retailing. There, he spent about 15 years before founding MSwipe. While supplying wine to retail stores, Patel had noticed the need for PoS machines but had found it tough to acquire one. From there emerged the idea of a different kind of PoS business.

“I figured that there were only four large banks who had monopolized the business. I looked around and found out that banks were deploying antiquated terminals and it got me thinking about newer ways to approach the problem. We set up to become a bank agnostic merchant acquirer,” he told BloombergQuint.

On launch, the company brought out a nifty card swiping machine. All you had to do was plug it into the audio jack of any phone and begin accepting card payments.

With 1,70,000 terminals, Patel claims Mswipe is the fifth largest deployer of card machines in the country. Since inception the company has raised $32 million, with the last round of funding coming in July 2015.

The machines offered by Mswipe are built for the Indian market, said Patel. They are possibly the only ones with a SIM card slot and work on Wi-Fi, he added. It's focus is on acquiring small and medium sized merchants in tier 2 and tier 3 cities. This means that the average ticket size for transactions at MSwipe machines is slightly lower at about Rs 1700 per transaction compared to Rs 1800 - Rs 3000 per transaction on regular PoS machines.

To sign up with Mswipe, a merchant needs to shell out upto Rs 3,000 as a one-time fee which goes towards delivering and setting up the terminal. From thereon, the charges are set at Rs 350 per month for unlimited transactions with no minimum transaction cap. In comparison, a regular PoS machine will cost atleast Rs 20,000 to buy along with regular overhead costs.

The Demonetisation Factor

Like other digital payment options, Mswipe, too, benefited from the shortage of currency in the country since November. Till then, the company was deploying machines at the pace of 10,000 devices per month. This shot up to 25,000 a month after demonetisation. Since then, demand has moderated.

“I think we will end February with 15,000 deployments which is still a high number compared to other acquirers,” Patel said.

While demonetisation was initially a boon for MSwipe, it could equally prove to be a bane.

The government is doing all it can to promote digital payment means such as the Unified Payment Interface (UPI) based BHIM app. BharatQR, a QR code based payment mechanism, has also been launched. As some of these become popular, some, including NITI Aayog chief Amitabh Kant, are of the view that PoS machines will become redundant.

Patel acknowledges that the payment world is changing rapidly but said that newer ways to pay have a long way to go before they can compete with the penetration of cards.

There is another challenge on the horizon.

The government and the RBI want all payment acceptance infrastructure to be biometric enabled to allow for the use of Aadhaar. The deadline for this has been set at June 30 by the RBI. Patel doesn't believe the industry is prepared. One, the costs will rise. Two, companies like MSwipe are not sure how to link biometric readers with PoS devices in the absence of a global standard.

“We have been asking them to define the transaction flow. For EMV [plastic card standard], transaction flow is a global standard. We don't know what it is here. They haven't told us whether people will put their cards and then use biometrics, or will they use biometrics first and then enter a pin or will there just be direct biometric based transactions. Nobody knows that.”

Do all these uncertainties mean that MSwipe's future may not be as bright as its past?

Naveen Surya, chairman of the Payments Council of India, thinks that there is enough room for different kinds of payment mechanisms to exist and grow.

“Acquiring merchants is going to be a big opportunity in the next two three years with all that has happened in the past few months. However, there is a lot of talk about unnecessary competition between products like QR code, Mswipe or physical PoS. In my mind, these are unique solutions that work for unique problems,” Surya told BloombergQuint over phone.