Mastercard is a payment system operator authorised to operate a Card Network in a country under the PSS Act. Mastercard is an American company name Mastercard Asia Pacific Ltd., established in 1979 for the interbank transaction. Currently, Mastercard provides its services to nearly 160 countries Credit, Debit and Prepaid Card.
On 14 July 2021 a press release from the Reserve Bank of India (RBI) has barred Mastercard Asia Pacific from onboarding new credit, debit and prepaid card customers with effect from 22 July as it failed to comply with data storage norms. The data storage rule enforced on 6th April 2018 by RBI mandates that─All Payment System Providers store the entire payment data like full end-to-end transaction details, information collected, carried processed as part of the message, payment instruction relating to payment systems operated by them located in systems only in India, expect for processing cross-border payments. Data sent abroad for processing should be deleted abroad within the prescribed timeline and stored only in India.
The US-based Mastercard Asia Pacific Ltd. payment network is the second-largest credit card issuer after Visa in India and the RBI stand could have implications on foreign relations. Mastercard is the third card network to be barred by RBI this year after similarly American Express and Diners Club prohibited from onboarding new customers in April. Now, only Visa and Rupay as the only card network allowed to take in new customers after being banned on Mastercard by RBI. The RBI had also prohibited private sector lender HDFC bank from adding new credit card customers and launching a digital business in December last year. The action took after HDFC Bank’s digital payment services were hit by a series of technical outages.
Mastercard response─ “While we are disappointed with the stance taken by the RBI in their communication dated July 14, we will continue to work with them to provide any additional details required to resolve their concerns. Building on our considerable and continued investments in India, we remain committed to working with our customers and partners in advancing in the government’s Digital India vision” Mastercard said.
Impact on Banks─ The RBI order will not affect existing customers of Mastercard. Also, a majority of banks are not expected to be affected as they often have relations with multiple networks and thus could continue to issue debit and credit cards using Visa or Rupay networks.
RBL Bank said on Thursday that its credit card issuance rate will be impacted. The lender currently issues credit cards on the Mastercard network only. However, the bank excepts to start the issuance of credit cards on the Visa payment network past the technology integration which is expected to take 8 to 10 weeks.
Mastercard share is roughly a third of the total cards market in India while peer Visa is the biggest player. Analysts believe that the impact of this ban would be felt on bank’s credit card spends in the current quarter.
Credit card spends took a hit in April and May due to the second wave of the pandemic. As such, growth in credit card spends has slowed over the past year as Indian’s turned their discretionary spending in the aftermath of the pandemic.
After baned on Mastercard, the Visa and Indian company Rupay market size may be a boost, as all banks and financial institutions moved to Visa and Rupay.