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Bankers fear huge disruption from RBI ban on Mastercard

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.

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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.

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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.

For more such updates, keep watching this space!

Daily News

RBI restricts Mastercard from issuing new debit, credit cards in India from 22 July

The Reserve Bank of India (RBI) restricts Mastercard from issuing new debit, credit cards in India from 22 July. The RBI order will not impact existing customers of Mastercard. The action has been against the payment system operator for violating RBI’s norms on the storage of payment systems data.

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The Reserve Bank of India (RBI) on Wednesday imposed restrictions on Mastercard Asia / Pacific Pte Ltd (Mastercard). Restrictions will stop Mastercard from onboarding new domestic debit, credit, or prepaid customers on its card network. The ban on Mastercard issuing new cards will come into effect from 22 July.

The order comes as firms such as Mastercard and Visa also face growing competition from domestic payments network Rupay. Rupay is an Indian Payments System Operator, which has been enjoying high promotion from PM Narendra Modi.

What are the reasons behind the ban?

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The action is taken against the payment system operator for violating RBI’s norms on the storage of payment systems data. RBI said in its official statement that notwithstanding the lapse of considerable time and adequate opportunities being given, the entity is non-compliant with the directions on Storage of Payment System Data.

The central bank also added that this order will not impact existing customers of Mastercard. Mastercard shall give its advisory to all card-issuing banks and non-banks to conform to these directions. RBI took the supervisory action while exercising the powers vested in RBI under Section 17 of the Payment and Settlement Systems Act, 2007 (PSS Act).

Mastercard is a Payment System Operator authorized to operate a Card Network in the country under the PSS Act. The PSS Act, 2007 provides for the regulation and supervision of payment systems in India. It designates the Reserve Bank of India as the authority for that purpose and all related matters. This act authorizes Reserve Bank to constitute a Committee of its Central Board known as the Board for Regulation and Supervision of Payment and Settlement Systems (BPSS). The committee will exercise its powers and perform its functions and discharge its duties under this statute.

The move comes less than three months after the RBI barred American Express and Diners Club International, owned by Discover Financial Services. Both the companies got restrictions from issuing new cards due to similar violations. Earlier, the central bank directive in 2018 sparked an aggressive lobbying effort from US firms. These rules would increase their infrastructure costs and hit their global fraud detection platforms. However, the RBI did not relent. For more such updates, keep watching this space!