SBI set to foray into merchant acquisition

State Bank of India (SBI) is finally getting into merchant acquisition business to increase its fee-based revenues and credit volumes on plastic cards (credit and debit cards). The country's largest lender may either forge an alliance or a joint venture for the foray.

The new business proposition assumes significance since SBI has been working out new measures to fight back concerns of a falling market share.

The use of cards especially credit cards to make payment for retail purchases is on rise and it makes sense for the bank to expand its reach beyond traditional channels for a steady flow of fee-based income (based on volume of transactions), a senior SBI official said.

Merchant acquisition activity involves settlement of dues on purchases made on credit cards. The business involves setting up of 'electronic data capture' (EDC) or 'point of sale' terminals at merchant outlets for the swiping of cards.

The bank will make the payment to the merchant establishments immediately and collect it from the card issuing bank later. For this service, the bank charges a commission.

The bank is putting thrust on technology driven products/ channels and State Bank group presently has around 6,000 ATMs across the country and has issued over 25 million cards.

This foray will cover all four geographical areas "" metro, urban, semi-urban and rural centres.

SBI had initiated business plans for entry into this segment almost five years ago (2002-03). "Now, we have clear perspective on how to go about. This being IT intensive activity, SBI will look for alliance", another SBI official said.

About nature of relationship banks will have with the vendor for this business, he said the bank would decide on the form of alliance based on revenue model that partner agree to.

The biggest players in the merchant acquisition business are foreign banks such as Citibank and Indian banking entities such as ICICI Bank and HDFC Bank. While foreign banks invest both in infrastructure and networking of these terminals, public sector banks mostly outsource them.