A Reserve Bank of India (RBI) decision to bar global card network Mastercard from issuing new cards, close on the heels of similar punitive actions on two other card networks, will cause significant disruption in India’s evolving payments system, said two senior executives of private sector banks on the condition of anonymity.
Banks that solely depend on Mastercard will take at least two months to move their business to either Visa, the sole global survivor so far, or homegrown RuPay.
RBI had on Wednesday restricted Mastercard from on-boarding new customers from 22 July for failing to comply with its data localization norms.
At the centre of these restrictions is a regulation from April 2018 that mandated all payments data from India to be stored in the country.
This initially did not sit well with many companies, but most eventually complied.
Institutions such as Visa and Mastercard are systemically important as they oversee thousands of transactions. according to the first 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,” said the banker mentioned above. It would have been better if RBI had given a warning six months in advance to stakeholders.
The banking regulator is sending out a larger message that everybody has to adhere to local rules, said the second banker mentioned above.
“RBI was earlier more facilitative in its discussions and did not come across publicly as tough,” said the second banker.
However, the central bank’s actions have come as a blessing for Visa and RuPay. Visa will probably be the sole gainer of market share in credit cards, while RuPay will strengthen its foothold in the debit card space, experts pointed out.
“As far as credit cards are concerned, it is expected to be a windfall for Visa in the next few months as banks have little choice.
RuPay will not find much benefit in credit cards as even today many global websites do not accept the card network,” said Parijat Garg, a fintech expert.
Asked about data localization compliance and whether it was in touch with the central bank, a spokesperson for Visa said the company will revert as soon as it has an update.
The restrictions on Mastercard will affect three credit card issuers the most, a report by brokerage Nomura pointed out on Thursday. RBL Bank, Yes Bank and Bajaj Finserv have their entire credit card scheme on Mastercard.
“RBL Bank expects to start issuance of credit cards on the Visa payment network after the technology integration, which is expected to take eight to 10 weeks,” the bank said in a regulatory filing on Thursday.
The Nomura report said HDFC Bank has 60% of its card schemes tied to Mastercard, American Express and Diners Club, while for Axis Bank and ICICI Bank, it is 35-36%. However, HDFC Bank is already under RBI curbs on credit card issuances from December and, thus, may not be incrementally hurt by the ban.
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 are not available, most banks offer all variants. The ban could temporarily affect liability account acquisitions in our view,” said a Macquarie report.
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