InvestorQ : Why has RBI lifted its ban on MasterCard and do you see it impacting RuPay?
Deepa Salunkhe made post

Why has RBI lifted its ban on MasterCard and do you see it impacting RuPay?

Arya Nanda answered.
8 months ago

Towards the end of last week, the RBI officially lifted the 11-month old ban on issuance of new cards by the MasterCard franchise. Since July 2021, MasterCard had been barred from issuing fresh cards in India. As per the order, passed in July 2021, MasterCard could continue to service existing customer accounts but fresh account opening was barred. This had resulted in banks shifting either to the Visa network or to the RuPay network. Now that the ban has been lifted, things should again normalize for MasterCard.

Let us quickly look at why the ban was imposed by the RBI in the first place. Just to recap, back in April 2018, the RBI passed a circular making it mandatory for all the card franchises and other platforms to house India related data in local servers only. While Visa adhered to the deadline stipulated by the RBI, MasterCard, American Express and Diners did not adhere to the circular and invited the ban. The order banning MasterCard was passed on July 14th, 2021, RBI had then banned MasterCard from onboarding new domestic customers.

RBI confirmed that MasterCard had made considerable efforts to comply with the regulations on data storage in last one year. The RBI April 2018 circular on storage of payment system data stipulates that all system providers must store India related data only in India located servers. This includes data pertaining to customers, end-to-end transaction data; information carried in payment instructions etc. However, in the case of one leg of the transaction having a foreign leg, RBI permitted mirroring of the data in the foreign country.

Let me now turn to how this would impact RuPay. As you are aware, RuPay is an Indian franchise, on the same lines as Union Pay in China and Mir of Russia. Visa and Master are for the global market. For starters, RuPay is the largest franchise in India with over 600 million cards and 60% share in India. However, it is also true that these are predominantly debit cards linked to no-frills accounts which were opened by the dozen by the current government as part of its Jan Dhan program across the length and breadth of India.

However, things are changing fast. Here is why. Firstly, there is the linkage of UPI to credit cards and to begin with the facility will only be extended to RuPay cards. That will provide a huge growth area for RuPay. Secondly, RuPay will soon be accepted in France after it tied up with Lyra Networks. This could get extended to more geographies. For now, RuPay and the traditional MasterCard and Visa franchises cater to different market segments. However, going ahead, the competition could become a lot more intense.