How RBI's Ban on Mastercard will Affect Banking Sector of India

Vishal Pratap Singh | Sunday, 25 July 2021, 11:04 IST

India’s decision to ban Mastercard for non-compliance with data storage rules has unsettled the country’s financial sector as it will disrupt banks’ card offerings and hit revenues. From July 22, the Reserve Bank of India (RBI) said, “new issuance of such cards will stop as Mastercard did not comply with 2018 rules requiring foreign card networks to store Indian payments data locally for unfettered supervisory access”. It will mean temporary disruption for banks, a lot of hectic negotiations and loss of business in the short term.  

Data Localization is the Need of Hour

The Indian government has presented data localization as a way to boost growth and help law enforcement access data for investigations. The main objective of Indian government behind Data Localization is to enable the better exercise of privacy rights of Indian citizens. It’ll protect against any form of unauthorised access of data by foreign intelligence. Through Data Localization, domestic surveillance over citizens can become easier. Over the last few years, Data localization has become a major policy concern in India.  

In 2019, the Indian government introduced a data protection bill in the Indian parliament. Before that in April 2018, RBI has also said that all system providers shall ensure that the entire data related to payment systems operated by them should be stored within the country.  This bill proposes the country’s first economy wide data localization framework. In many parts of the country, sector-specific data localization measures have already been implemented. For example, telecom sector already requires the local processing of subscriber information and prohibits the transferring of subscribers’ account information overseas.

It is a well-known fact that there is a massive explosion in data being generated by the users who are connected to internet. If a report to be believed digital data in India was around 40,000 petabytes in 2010 which shot up to 2.3 million petabytes by 2020, which is double of the global rate. Right to privacy is the fundamental right of every country which necessitates the protection of personal data and prevents it from any kind of misuse.  

Reaction of Companies on Data Localisation

Mostly big MNCs are not happy with such restrictive laws. Accountability of firms like Google, Facebook, etc. about the end use of data will increase after this move of Indian government. On the other hand, companies such as Paytm and Phonepe have welcomed data localisation. Sameer Nigam, Founder & CEO of Phonepe said that this move would allow for better regulatory oversight and plug business jurisdiction related loopholes that some foreign companies have long exploited to evade paying fair taxes in India. Their push is from a data security angle and to safeguard India’s homegrown ventures. Data Localization makes it mandatory for the companies to store, process and collect critical data of the consumers within the country.

Other Payment Options for Banks

Market experts believe that RuPay could be that one player who could see exceptional growth after the ban on US based Mastercard. This is because RuPay is Indian and it could give government and regulators the jurisdiction to call for the data when required. Also, unfettered access to these data will help the government to ensure better monitoring. “The dependence on foreign brands will be consciously reduced as the government seems to be focussed on making Indian brand successful. This is probably a push from government’s side for the banks to seriously consider the Indian options,” said Ambareesh Baliga, an independent market analyst.  

Customers of Mastercard have started moving towards RuPay and Visa. Now, many banks will be partnering with more than one payment company. In fact, some PSU banks are already offering RuPay cards. RuPay is owned by Reserve Bank of India’s National Payments Corporation of India and was considered as a dominant player with a market share of around 60 per cent.

Experts believe that even Unified Payment Interface (UPI) which is a partly state owned digital payment system could also get benefited after the ban on Mastercard. The payment process on UPI is easier, faster and more secure which makes it a contender to replace card payments. UPI payments are done from one bank account to another without the addition of beneficiary which can be proved as a great replacement for cards. Unlike credit cards, there are no transaction charges on UPI payments which is another added benefit.

How Market of Payment Services will Change

Data centre industries of India will benefit from this decision and will create further employment in India. Several private sector lenders like HDFC Bank, Yes Bank, ICICI Bank, RBL Bank have tie-ups with Mastercard for debit and credit cards. However, now banks are not able to issue new cards on the Mastercard network anymore. Some analysts believe that the impact of this ban would be felt on banks’ credit card spends in the current quarter.  At present, there is need to have an integrated long term strategy by RBI for policy creation related to payments. Indian banks may see trend of card spends and new card issuance after the ban on Mastercard.

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