RBI on July 14, 2021, restricted MasterCard from adding new customers in India (effective from July 22, 2021). The RBI took this step because Mastercard failed to comply with the local data storage rules announced by RBI in April 2018. This is going to impact MasterCard which owns about one-third of the market in India. It is going to affect Banks as well that have tied up with MasterCard as their Card Network provider recently.
Today’s article is all about why RBI took this step and how it is going to impact our banks.
Can RBI ban MasterCard?
Yes, under PSS Act 2007, RBI has been given authority for this purpose. The PSS Act, 2007 provides for the regulation and supervision of payment systems in India and designates the Reserve Bank of India as the authority for that purpose and all related matters.
Under the PSS Act, 2007, two Regulations have been made by the Reserve Bank of India, namely, the Board for Regulation and Supervision of Payment and Settlement Systems Regulations, 2008 and the Payment and Settlement Systems Regulations, 2008. Both these Regulations came into force along with the PSS Act, 2007 on 12th August 2008.
India has currently three card networks operating in India i.e. MasterCard, VISA, and RuPay. Mastercard and VISA are U.S Based and both have a substantial presence in the Indian Market While Visa has a market share of over 40 per cent, MasterCard’s share is more than 30 per cent.
It is not the first time that RBI banned a card Network provider. It banned American Express and Diners Club earlier this year due to the same reason.
What does RBI want Card Network providers (based in India or outside India) to do?
To adopt safety and security measures, RBI on April 05, 2021, released a circular stating that all system providers shall ensure that the entire data relating to payment systems operated by them are stored in a system only in India. This data should include the full end-to-end transaction details/information collected/carried/processed as part of the message/payment instruction.
Will it affect the existing account holders?
No, RBI banned MasterCard only for adding new customers, there will be no impact on existing MasterCard customers.
According to RBI, there are 90.23 crore debit cards and 623 crore credit cards issued in India.
As MasterCard is banned to add new customers in India, banks are likely to move to other alternatives. It is evident that VISA and RuPay will see a substantial increase in their customer base. VISA will probably be the sole gainer of market share in Credit cards, while RuPay will strengthen its foothold in the debit card space.
The benefit of RuPay is a direct benefit of the Indian government as this Card Network is solely based in India made by the National Payment Corporation of India (NPCI).
It is evident that MasterCard would not like to lose its customers in India at any cost. It was resistant to open a data centre in India as it requires a heavy investment. But, with RBI’s strict stand on this, MasterCard may open its centre in India.
Overall, it is a good move by RBI considering the safety and security of data. It will also help Indian Card Network provider RuPay in increasing its customers in India.
Important Points from exam point of view
- CEO: Michael Miebach (1 Jan 2021–)
- Founded: 16 December 1966, United States
- Headquarters: Purchase, Harrison, New York, United States
Reserve Bank of India
- Headquarters: Mumbai
- Founded: 1 April 1935, Kolkata
- Governor: Shaktikanta Das
- Owner: National Payments Corporation of India
- Founded: 8 May 2014
- Tagline: ONE LIFE. ONE RuPay