This post has been corrected.
India’s decision to ban Mastercard from issuing new debit and credit cards in the country could be a win for the government’s own payment systems—and that’s not all good news.
On July 14, the Reserve Bank of India (RBI) said US-based Mastercard had not complied with data storage rules from 2018 (pdf) that require foreign card networks to store Indian payments data within the country so the regulator can have “unfettered supervisory access.” The ban on Mastercard will come into effect on July 22. RBI’s move will not impact existing customers of Mastercard.
Most banks in India provide four types of debit and credit cards: Visa, Mastercard, Maestro (a part of the Mastercard enterprise), and RuPay. Of these, only RuPay is Indian, and until its launch in 2012, the sector was dominated by foreign players.
With one of these four out of the picture, for now, experts believe, RuPay could be the one player to see exceptional gains. This is particularly because of the Narendra Modi government’s tough stance against foreign card companies in recent years.
“The dependence on foreign brands will be consciously reduced as the government seems focussed on making homegrown one successful. This probably a nudge for the banks to seriously consider the homegrown names,” said Mumbai-based independent market analyst Ambareesh Baliga.
Mastercard, RuPay, and UPI
The ban on Mastercard, the world’s second-largest payments processor, comes after India’s central bank, in May, barred American Express and Diners Club International from issuing new cards due to similar violations.
Customers of 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) in November 2020. Experts believe a similar trend will follow Mastercard’s ban. Mastercard currently accounts for nearly 33% of all card payments in India.
“Data localisation is a major issue on a global level…With Mastercard getting banned, major channels will be Visa and RuPay. Most of the banks will be partnering with more than one payment company now. A lot of PSU banks are already offering RuPay cards,” said Asutosh Mishra, head of research for institutional equity 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 done from one bank account to another without adding a beneficiary, can be a replacement for cards. The UPI payment process is easier, faster, and more secure, which makes it a contender to replace card payments. In addition, there are no transaction charges on UPI payments, unlike credit cards.
The two Indian platforms may be in for great times ahead because experts warn that even Visa could see a ban like the one that American Express, Diners Club International, and Mastercard are facing. This trend, though, could be a dangerous one.
RuPay in Modi’s India
While the government-owned platforms gain more business, customers have much to lose from the bans on international card networks as it will leave Indians with limited options. In addition, global companies could see this as an obstruction to free trade, making them wary of protectionism in India.
The Modi government has been blamed for using nationalistic sentiment to promote RuPay in the past.
In 2014, when Modi launched his flagship financial inclusion campaign Jan Dhan Yojana, the beneficiaries were offered a basic bank account along with a free RuPay debit card. Foreign payment companies such as Mastercard and Visa were left out of this project.
In 2018, Modi had appealed to Indians to serve the nation by using Rupay debit and credit cards instead of foreign card networks.
Mastercard had reportedly raised this issue with the Office of the US Trade Representative in 2018 and said that Modi “associated the use of RuPay cards with nationalism, claiming it serves as ‘kind of national service’.”
Mastercard’s return to India
Baliga believes that Mastercard will leave no stone unturned to keep its customer base intact in India, even if it means conforming to the stipulated requirements by the RBI. In 2019, Mastercard had announced a $1 billion (Rs7,452 crores) investment in the country over five years, following its earlier investment of the same amount in 2014.
We are “fully committed to our legal and regulatory obligations in the markets we operate in,” the company said in a statement after the RBI ban. “While we are disappointed with the stance taken by the RBI in their communication dated July 14, we will continue to work with them to provide any additional details required to resolve their concerns.”
Meanwhile, banks with an exclusive tie-up with Mastercard are already looking to partner with other payment networks to issue new cards. RBL Bank, Bajaj Finserv, and Yes Bank were the most affected lenders because of the ban. On July 15, RBL Bank entered into an agreement with Visa Worldwide (pdf) for issuing credit cards.
Correction: $1 billion is Rs7,452 crores.