Soon after the Reserve Bank of India (RBI) decision to bar global card network Mastercard from issuing new cards, Bankers fear that similar punitive actions on two other card networks will cause significant disruption in India’s evolving payments system.
Banks that are solely using Mastercard will take at least two months for improving their business to either Visa, the sole global survivor so far, or homegrown RuPay. RBI had on Wednesday applied its restriction on Mastercard from onboarding any new customers from 22 July. The restrictions came after the company’s failure to comply with its data localization norms.
At the centre of these restrictions is a regulation that came in April 2018 and made it mandatory to store all payments data from India, inside the country. This initially did not sit well with many companies, however, most companies eventually complied.
Experts' reaction on Mastercard ban
Institutions such as Visa and Mastercard oversee thousands of transactions and hence are systemically important to the country. According to one banker, a fine would have been more appropriate than a ban. As such sudden moves create a lot of disruption not only for banks but also for customers. Even better if RBI had given a warning six months in advance to stakeholders before any fine or ban.
According to a second banker, the banking regulator is sending out a bolder message. RBI is very clear in its message that everybody has to adhere to the local rules of the country. RBI was earlier more facilitative in its discussions and did not come across publicly as tough.
The central bank’s actions have come as a blessing for Visa and RuPay. Experts are speculating, Visa to be the sole gainer of market share in credit cards. Meanwhile, RuPay will strengthen its foothold in the debit card space.
According to Parijat Garg, a fintech expert, some clear trends are visible in the market. Visa will be the sole gainer in the credit card segment for the next few months. This prediction is quite easy to make, as banks have very little choice. RuPay will not find much benefit in credit cards. Since many global websites do not accept the card network, even today.
Which banks are facing the greater impact?
The restrictions on Mastercard will affect three credit card issuers the most. According to a report by brokerage Nomura, RBL Bank, Yes Bank, and Bajaj Finserv have their entire credit card scheme on Mastercard. RBL Bank expects to start the issuance of credit cards on the Visa payment network after the technology integration. This will take eight to 10 weeks approximately, as per the official statement from the bank.
The Nomura report said HDFC Bank has 60% of its card schemes tied to Mastercard, American Express, and Diners Club. Whereas, for Axis Bank and ICICI Bank, the same is at 35-36 percent. However, HDFC Bank is already under RBI curbs on credit card issuances since December. Thus, the bank may not be incrementally hurt by the ban.
Experts also said the ban on Mastercard could impact liability account acquisition as debit card issuances will be hit. “Large banks such as HDFC Bank and Axis Bank added close to 6.5-7 million liability accounts in FY21. While the exact proportion of Mastercard vs Visa vs RuPay debit cards is not available, most banks offer all variants. The ban could temporarily affect liability account acquisitions in our view,” said a Macquarie report.
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