RBI Bars Mastercard From Taking On New Customers In India
A Mastercard Inc. credit card is arranged for a photograph in Tiskilwa, Illinois, U.S. (Photographer: Daniel Acker/Bloomberg)

RBI Bars Mastercard From Taking On New Customers In India

Global card network Mastercard has been barred from adding any new customers in India by the Reserve Bank of India. On Wednesday, the regulator said that the action is being taken due to non-compliance with its data storage norms.

"Notwithstanding lapse of considerable time and adequate opportunities being given, the entity has been found to be non-compliant with the directions on Storage of Payment System Data," the RBI said in a statement.

The restrictions will kick in starting July 22, 2021.

The directions issued to Mastercard will cover any new issuance of debit, credit and prepaid cards. Servicing of existing cards in the country will not be covered.

In a statement late Wednesday evening, Mastercard said that it is fully committed to its legal and regulatory obligations in the markets it operates in. The company said it provided consistent updates and reports regarding its activities and compliance with the required stipulations.

"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," Mastercard said in its statement.

This is the third global card company against whom the regulator has taken action for not being compliant with data storage norms. In April, the RBI had barred American Express and Diners Club from taking on new customers.

The data storage norms, announced in April 2018, had directed all system providers to ensure that data relating to payment systems operated by them is stored in a system in India. The RBI had given a six-month timeline to be compliant with the guidelines. Additionally, system providers had to also get a board-approved system audit report conducted by a CERT-In empanelled auditor.

Three Down...

Mastercard is one of the top three card issuers in India, along with Visa and Rupay. American Express and Diners, which are already under restrictions, have a much smaller presence.

Most major banks work with the more than one card network to ensure their customers are provided with debit and credit cards along with their bank accounts.

The RBI does not provide data on the share of each of the card networks.

PPRO, a U.K. based private global payments infrastructure provider, in a 2020 report on the payments and ecommerce market in the Asia Pacific region said that 45% of the outstanding card base in India is with Visa, Mastercard holds about 33% and Rupay has 20% of the market.

Monthly data provided by RBI shows that as of May, there were 6.24 crore credit cards and over 90 crore debit cards in circulation.

As such, about of third of India's new cards market may have to be reoriented towards other networks.

Limited Customer Impact But Slower Issuance?

Vijay Jasuja, former chief executive officer of SBI Card & Payments Services said that the current cards market is largely tilted in favor of Visa. While Mastercard has aggressively tried to cover the gap it has with Visa, it has only managed to come close to the market leader in the low yielding debit card segment.

In the credit card space, where spends are higher and customers are more discerning of the benefits they get with a card network, Visa still dominates other networks, Jasuja said.

The RBI's decision to limit fresh card issuance from Mastercard will mean the market will essentially function as a duopoly between Visa and Rupay. Banks, however, will not be impacted much as they can issue cards on any network. "Customers are largely agnostic since the acceptance network accepts all three," Jasuja said.

The pace at which new cards, particularly credit cards are issued, may get impacted, said Suresh Ganapathy, analyst at Macquarie Securities.

The key concern is that credit cards, which are a profitable product for banks and earn post tax return on assets of ~5-6%, could get impacted as banks now will have to transition to a Visa or a Rupay platform which will take time. Our conversations with bankers reveal that it could take two months for the new payment platform (say Visa) to issue new plastics and take up the additional capacity vacated by Mastercard.
Suresh Ganapathy, Macquarie Securities

Serious About Data Localisation

The broader message behind the RBI's move is that the regulator intends to enforce data localisation with strictness. Apart from the strictures on card networks, the RBI had earlier deferred a full launch of whatsapp's payment services till data localisation rules were complied with.

"The RBI's stance on data localisation norms is a clear indicator that it is trying to drive a broader strategy with respect to data storage. A stance such as this allows for better protection of domestic customer data and also protects the financial system from geopolitical risks," said Vivek Ramji Iyer, partner, Grant Thornton Bharat.

For global payment systems providers, the message is clear that they must follow the regulator's guidelines, he said.

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