India Pushes Ahead with EMV Migration, but Slowdown Evident

ABI Research recently published its latest edition of the Payment & Banking Card Technologies market data, a biannual publication. The data base contains detailed information on both the installed base and shipments of payment cards broken down by product and technology type, covering all regions and 30 individual countries.

This insight takes a deeper look into the much hyped Indian payment cards market. As one of the last major migration volume opportunities, it’s important to understand the current market dynamics, why 2017 payment card shipments fell below initial expectations, standing at 196 million units, and why there remains ample opportunity driven by bank consolidation and India’s national payments network, RuPay.

In 2017, India continued to progress and push ahead with its EMV migration; however, it became clear that migration progress significantly slowed and as a result, ABI Research’s EMV issuance expectations for 2017 were adjusted down to 196 million units,  from the 259 million units originally forecast in 2Q 2017.

The slowdown was driven by three primary reasons:

1. 2016 results were helped by a significant increase in banking clients, driven by the government’s decision to demonetize the 500 and 1,000 rupee notes. As reported by the Reserve Bank of India, debit card issuance increased 30% between 2015 and 2016. This caused a significant organic growth opportunity, which helped push EMV issuance towards the 170 million mark in 2016. However, this organic growth piece is not considered sustainable and thus issuance slowed, with focus on migrating cards already in circulation, not exacerbated by a significant increase in banking clients.
2. RuPay, India’s national payments network continues to focus on digitization and bringing digital banking facilities to the unbanked. This effort continues, but to ABI Research’s knowledge, RuPay-based cards are yet to migrate to EMV, resulting in a continuation of mag-stripe card issuance throughout 2017.
3. State-run bank mergers and consolidation (most notably the government’s aim to consolidate the 21 state-run banks to 10 to 15, the most recent merger taking place in April 2017, when State Bank of India consolidated five of its associated banks) further slowed down migration plans, with attentions shifting away from the migration process. 

In spite of the slight negatives, the Indian market progressed extremely well, outgrowing the global market by some distance, with future expectations of YoY growth rates between 11% and 22% likely being achieved between 2018 and 2021. Overall India remains a fantastic opportunity as it pertains to EMV migration, but one where growth will be spread over a longer time frame, when compared to initial expectations.

Despite the fact that migration is not yet complete, vendors and ecosystem players are already looking towards the next generation migration opportunity from contact to contactless. Today, India is a contact majority country, but banks and financial institutions are already exploring contactless. Although this hasn’t yet translated into significant contactless shipments, it does demonstrate interest and possible intent, but this will be on the basis that the price is right, in a country where contact payment card margins and price points are already under significant pressure. Move over, in 2017 the Indian market was one of a handful of countries which had a significant impact on global payment card ASPs. Further banking consolidation, creating larger banking entities will likely result in further ASP pressures moving forward. Understanding the dynamics and reasons behind significant ASP degradation in India can help payment card ecosystem players better plan and prepare, using India as a potential case study for the next wave of EMV migration opportunity in countries including; Indonesia, Turkey, Egypt, the Philippines and Iran.

Banks and financial institutions make no secret in their desire to decrease issuance costs and larger banking entities are beginning to push their weight around, using significant buying power in order to secure better unit rates. Although affecting the margins of smart card and secure IC vendors including Gemalto, IDEMIA, G&D, CPI Card Group, Infineon, Samsung, STMicroelectronics and NXP,  price reductions may actually help improve the viability of contactless migration, a higher value card proposition, whilst freeing up issuance budgets to reinvest in other payment alternatives and companions including mobile and wearable.   

However, ABI Research believes the Indian market will remain a price sensitive region and as such the contact interface will continue to dominate over the forecast period. Having said this, clear intent from some of the leading issuers will likely translate into pockets of contactless issuance, initially targeting tier one banking clients.

And finally, the slowdown hasn’t been bad for all and in fact the Indian market has provided a growth platform for a number of vendors, most notably Samsung, from a secure IC perspective, which moved from 4^th to third position within the payment card IC market share rankings, and IDEMIA, from a smart card perspective, one of the only international smart card vendors delivering finished cards into the country.