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India’s move to ban Mastercard from issuing new debit and credit cards in the country could be a victory for the government’s own payment systems, and it’s not all good news.
On July 14, the Reserve Bank of India (RBI) said that US-based Mastercard failed to comply with the 2018 data storage rules (pdf) that require foreign card networks to store credit cards. Indian payment data in the country so that the regulator can have “unhindered oversight.” access. ”The Mastercard ban will go into effect on July 22. RBI’s decision will not impact existing Mastercard customers.
Most banks in India offer four types of debit and credit cards: Visa, Mastercard, Maestro (which is part of the Mastercard business), and RuPay. Of these, only RuPay is Indian, and until its launch in 2012, the industry was dominated by foreign players.
With one of those four out of the picture, for now, experts say RuPay may be the only player to see windfall wins. This is partly due to the Narendra Modi government’s strong stance towards foreign card companies in recent years.
“Dependence on foreign brands will consciously be reduced as the government appears focused on the success of a local brand. This probably prompts banks to seriously consider local names, ”said Ambareesh Baliga, independent market analyst based in Mumbai.
Mastercard, RuPay and UPI
The ban on Mastercard, the world’s second-largest payment processor, comes after India’s central bank in May banned American Express and Diners Club International from issuing new cards over similar violations.
Customers from these two networks had flocked to RuPay, which is owned by RBI’s National Payments Corporation of India, and was already a dominant player with a market share of around 60% (pdf) as of November 2020. Experts believe that ‘a similar trend will follow that of Mastercard. to prohibit. Mastercard currently accounts for almost 33% of all card payments in India.
“The localization of data is a major problem at the global level… With the Mastercard ban, the main channels will be Visa and RuPay. Most banks will now partner with more than one payment company. Many PSU banks already offer RuPay cards, ”said Asutosh Mishra, head of institutional equity research at Ashika Stock Broking.
The other beneficiary of the ban would be the Unified Payment Interface (UPI), a partly state-owned digital payment system. UPI payments, which are made from one bank account to another without adding a beneficiary, can replace cards. The UPI payment process is simpler, faster and more secure, making it a competitor to replace card payments. Plus, there are no transaction fees on UPI payments, unlike credit cards.
The two Indian platforms could have big moments ahead, as experts warn that even Visa could see a ban like the one American Express, Diners Club International and Mastercard are facing. This trend, however, could be dangerous.
RuPay in Modi India
As government-owned platforms gain more business, customers have a lot to lose from bans on international card networks as this will leave Indians with limited options. In addition, global companies might see it as a hindrance to free trade, making them wary of protectionism in India.
The Modi government has been accused of using nationalist sentiment to promote RuPay in the past.
In 2014, when Modi launched his flagship financial inclusion campaign Jan Dhan Yojana, beneficiaries were offered a basic bank account as well as a free RuPay debit card. Foreign payment companies such as Mastercard and Visa were excluded from this project.
In 2018, Modi called on Indians to serve the nation by using Rupay debit and credit cards instead of foreign card networks.
Mastercard reportedly raised this issue with the U.S. Trade Representative’s office in 2018 and said Modi “associated the use of RuPay cards with nationalism, claiming it was a” kind of national service. “
The return of Mastercard to India
Baliga believes Mastercard will spare no effort to keep its customer base in India intact, even if it means complying with the requirements stipulated by the RBI. In 2019, Mastercard announced an investment of $ 1 billion (7,452 lakh crore) in the country over five years, following its previous investment of the same amount in 2014.
We are “fully committed to our legal and regulatory obligations in the markets in which we operate,” the company said in a statement after the RBI ban. “While we are disappointed with the position taken by the RBI in its July 14 communication, we will continue to work with them to provide any additional details necessary to resolve their concerns.”
Meanwhile, banks with an exclusive connection to Mastercard are already looking to partner with other payment networks to issue new cards. RBL Bank, Bajaj Finserv and Yes Bank have been the most affected lenders due to the ban. On July 15, RBL Bank entered into an agreement with Visa Worldwide (pdf) for the issuance of credit cards.
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