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Agencies
A ban on Mastercard issuing new credit and debit cards in India for not complying with the country’s data storage rules is causing upheaval and revenue loss for banks that have partnerships with the US payments company, analysts say. At the same time, rival firms like Visa, homegrown RuPay and financial technology payment startups could stand to benefit from the move.
“Change is always painful,” says Poshak Agrawal, the co-founder and chief executive of Florence Capital, a digital loans company based in New Delhi.
“Almost all banks are impacted due to this ban, some more than others … this is a major opportunity for some FinTech startups”, as it could give a boost to digital payment platforms that do not require cards and were already becoming increasingly popular in India.”
There is a lot at stake. Mastercard last year accounted for 33 per cent of card transactions in India, according to data from PPRO, a London-based payments firm. India was seen as an important growth market for Mastercard, which in 2019 committed to invest $1 billion in the country over the next five years.
The ban also comes as India’s use of debit and credit cards has been on the rise in recent years, as the government tries to push the country towards formal banking and digital transactions, away from non-transparent cash payments.
Announced earlier this month and imposed by the Reserve Bank of India (RBI), the ban bars Mastercard from issuing credit or debit cards to new customers and came into effect on July 22.
“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. The central bank, however, stressed that existing customers would not be affected.
In 2018, the RBI issued new rules which stated that Indian payments data would have to be stored exclusively within India. The regulator says that Mastercard had to comply so it could have “unfettered supervisory access” to the data.
Agrawal says it “was definitely a surprise” that Mastercard was “not compliant with the policies laid out by RBI”, given that there has been an increase in monitoring and action taken by the RBI in recent months.
Earlier this year, the central bank barred American Express and Diners Club International from issuing new cards on similar grounds.
India is not the only country acting against entities that do not comply with data privacy rules. Earlier this month, China’s regulators clamped down on Chinese ride-sharing company Didi, alleging it had mishandled sensitive data about its users in the country. That led to the company’s stock dropping about 20 per cent a week after it went public in the US.
“One would expect firms to prepare their processes for RBI scanning after learning from different players in the banking industry, but that has not been the case,” says Mr Agrawal.
Banks have been left to deal with the fallout of the decision, which will add to their costs.
“The banks [that have] an exclusive arrangement with Mastercard will explore the possibilities of joining with other players in the market for fresh business,” says Jyoti Prakash Gadia, the chairman of the banking, financial services and insurance committee at the PHD Chamber of Commerce, which is a New Delhi-based industry group.
“This is, however, a time-consuming process of finalisation of terms and setting up new systems and, therefore, will entail the loss of business in the near future.”
Banks are already reacting to the move. RBL Bank, the fifth largest credit card issuer in India, was in partnership with Mastercard for its credit cards. Following the ban announcement, it said it was switching to Visa for its cards.In the past five years, the number of credit cards issued in India more than doubled to 55 million
A ban on Mastercard issuing new credit and debit cards in India for not complying with the country’s data storage rules is causing upheaval and revenue loss for banks that have partnerships with the US payments company, analysts say. At the same time, rival firms like Visa, homegrown RuPay and financial technology payment startups could stand to benefit from the move.
“Change is always painful,” says Poshak Agrawal, the co-founder and chief executive of Florence Capital, a digital loans company based in New Delhi.
“Almost all banks are impacted due to this ban, some more than others … this is a major opportunity for some FinTech startups”, as it could give a boost to digital payment platforms that do not require cards and were already becoming increasingly popular in India.”
There is a lot at stake. Mastercard last year accounted for 33 per cent of card transactions in India, according to data from PPRO, a London-based payments firm. India was seen as an important growth market for Mastercard, which in 2019 committed to invest $1 billion in the country over the next five years.
The ban also comes as India’s use of debit and credit cards has been on the rise in recent years, as the government tries to push the country towards formal banking and digital transactions, away from non-transparent cash payments.
Announced earlier this month and imposed by the Reserve Bank of India (RBI), the ban bars Mastercard from issuing credit or debit cards to new customers and came into effect on July 22.
“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. The central bank, however, stressed that existing customers would not be affected.
In 2018, the RBI issued new rules which stated that Indian payments data would have to be stored exclusively within India. The regulator says that Mastercard had to comply so it could have “unfettered supervisory access” to the data.
Agrawal says it “was definitely a surprise” that Mastercard was “not compliant with the policies laid out by RBI”, given that there has been an increase in monitoring and action taken by the RBI in recent months.
Earlier this year, the central bank barred American Express and Diners Club International from issuing new cards on similar grounds.
India is not the only country acting against entities that do not comply with data privacy rules. Earlier this month, China’s regulators clamped down on Chinese ride-sharing company Didi, alleging it had mishandled sensitive data about its users in the country. That led to the company’s stock dropping about 20 per cent a week after it went public in the US.
“One would expect firms to prepare their processes for RBI scanning after learning from different players in the banking industry, but that has not been the case,” says Mr Agrawal.
Banks have been left to deal with the fallout of the decision, which will add to their costs.
“The banks [that have] an exclusive arrangement with Mastercard will explore the possibilities of joining with other players in the market for fresh business,” says Jyoti Prakash Gadia, the chairman of the banking, financial services and insurance committee at the PHD Chamber of Commerce, which is a New Delhi-based industry group.
“This is, however, a time-consuming process of finalisation of terms and setting up new systems and, therefore, will entail the loss of business in the near future.”
Banks are already reacting to the move. RBL Bank, the fifth largest credit card issuer in India, was in partnership with Mastercard for its credit cards. Following the ban announcement, it said it was switching to Visa for its cards.In the past five years, the number of credit cards issued in India more than doubled to 55 million
