Processing of domestic card transactions will shift to India over the next few years with India Pay, a domestic payment system, expected to take over the activity which is so far done overseas.

While the process is expected to take four to five years, India Pay, the new payment system will start next year. Initially, the focus will be on ATM transactions.

Sources said that, over the next four to five years, the processing of credit card transactions, which is so far done abroad, will shift to India. Sources at the Indian Banks' Association, which is on the scheme, said that India Pay will handle all domestic transactions and work with payment networks like Visa and MasterCard for international transactions undertaken by Indian cardholders or foreigners visiting the country.

Once the processing work shifts to India, sources said, the transaction costs will come down. At present, the fees charged by Visa and MasterCard are relatively high, they said. Also, the fees which will go to the Indian company will result in savings in foreign currency.

Countries such as China have already shifted to local processing after China Union Pay started operations in 2003.

In India, a company, National Payment Corporation of India, has already been registered.

IBA deputy chief executive K Unnikrishnan said the entity will focus on three strands -- electronics payments, ATM transactions and processing of card payments. It is in the process of appointing a chief executive officer and a management team.

The company's initial capital base will be Rs 100 crore (Rs 1 billion), while the authorised capital is pegged at Rs 300 crore (Rs 3 billion). Nine banks, including two foreign players operating in India, have picked up stakes in the company. Some of the banks include State Bank of India [Get Quote], Bank of India, Bank of Baroda [Get Quote], Punjab National Bank [Get Quote], ICICI Bank [Get Quote], HDFC Bank [Get Quote], Citi Bank and HSBC.

As the operations progress, more banks would be brought on the board as shareholders. Public sector banks would hold a 51 per cent stake.