The RBI prevented Mastercard from accepting new customers because it did not comply with the data localization rules
A decision by the Reserve Bank of India (RBI) to ban the global Mastercard network from issuing new cards, shortly after similar penalties on two other card networks, will cause significant disruption to India’s evolving payment system, two senior executives at private sector banks said on condition of anonymity.
Banks that depend entirely on Mastercard will need at least two months to switch their business to either Visa, the only global survivor to date, or the indigenous RuPay.
On Wednesday, RBI had banned Mastercard from accepting new customers from July 22nd for failure to comply with their data localization standards.
At the center of these restrictions is a regulation from April 2018, which requires that all payment data from India be stored in the country.
Institutions like Visa and Mastercard are systemically important as they oversee thousands of transactions. after the first banker. « A fine would have been more appropriate than a ban, as such sudden steps are a major disruption not only for banks but also for customers, » said the aforementioned banker. It would have been better if the RBI had warned those involved six months in advance.
The banking regulator is sending out a bigger message that everyone has to abide by local rules, said the second banker mentioned above.
« The RBI used to be a moderator in their discussions and didn’t come across as hard in public, » said the second banker.
However, the central bank’s actions have been a boon to Visa and RuPay. Visa is likely to be the only credit card market share winner, while RuPay will strengthen its position in the debit card space, experts pointed out.
“As far as credit cards are concerned, it is expected to be a godsend for Visa in the next few months, as banks have little choice.
RuPay won’t find much benefit with credit cards as many global websites still don’t accept the card network, « said Parijat Garg, a fintech expert.
When asked about compliance with data localization and whether it was in contact with the central bank, a spokesman for Visa said the company will return as soon as it has an update.
The restrictions on Mastercard will affect three credit card issuers the most, a report from brokerage house Nomura pointed out Thursday. RBL Bank, Yes Bank and Bajaj Finserv have their entire credit card system on Mastercard.
« RBL Bank expects to begin issuing credit cards in the Visa payment network after the technology integration, which is expected to take eight to ten weeks, » the bank announced on Thursday in an official application.
According to the Nomura report, 60% of their card systems at HDFC Bank are tied to Mastercard, American Express and Diners Club, while at Axis Bank and ICICI Bank it is 35 to 36%. However, the HDFC Bank will be subject to the RBI’s restrictions on the issuing of credit cards from December and can therefore not be further affected by the ban.
Experts also said the Mastercard ban could impact liability accounts acquisition as debit card issuance will be affected. “Big banks like HDFC Bank and Axis Bank added nearly 6.5-7 million passive accounts in FY21. While the exact ratio of Mastercard vs Visa vs RuPay debit cards isn’t available, most banks offer all variants. We believe the ban could temporarily affect the acquisition of liability accounts, « a Macquarie report said.
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