On July 14, RBI communicated that payment services major Mastercard has failed to comply with the directions on storage of Payment System Data & will be barred indefinitely to issue new debit, credit or prepaid cards from July 22, 2021.
Effect: Visa & RuPay will win big. RuPay could dramatically improve its position in debit card market & Visa could virtually capture the whole credit card market. This is a good outcome. Why? This is a reward for compliance. It shows that they respect law of the land or at least care about their business.
Implication: Govt. can clearly define financial reward for compliance & for taking initiative to encourage new innovation & faster adoption of rules and regulations. Let’s take the example of Indian automobile industry. GOI had a deadline of April 1, 2017 for BS-IV emission norm. Whereas most manufacturers were asking for extension, Bajaj Auto was ready with its BS-IV stock months before the deadline. Here, a small incentive, be it financial reward or even public recognition, would have given some encouragement to others to comply before the deadline.
They had to invest so much on R&D and infrastructure updation to design and manufacture cleaner vehicles, plus their per unit cost of production increased due to more complex component. This means not only there was no incentive for taking initiative but a clear punishment. Due to increased cost of production they had to increase the price, whereas the competition gained competitive advantage not for providing better product but for being complacent. When there is so much incentive (subsidy) for EV, then why shouldn't there be incentive for cleaner IC engines? Mercedes paid even bigger price in 2015 because it’s ok for judges to pass judgement (the NCR diesel engine ban) on the subject of science & technology even though they don’t have the remotest understanding of the subject.
Similarly GOI is putting so much effort and money on road & road user safety, yet the organization who are actively working on it aren’t getting any appreciation or encouragement from govt. or regulatory bodies. Indian manufacturer like TATA & Mahindra and foreign manufacturers like Audi, Skoda, BMW, Mercedes etc are working so hard to build such vehicles which will keep their customers & other road users safe. Even after Indian public vociferously asking for safer cars, there is no real updation of safety standards. This allows majority of car manufacturers, who clearly don’t care about safety of their customers & Indian public, to sell light & unsafe cars which are more profitable for them. The existing safety standards of Indian bodies like ARAI or SIAM is so poor that it’s not even worthy of a joke.
In the future, if govt./regulatory bodies make the incentive to comply clear, the rate of compliance & initiative to innovate will be much faster.
Effect: RBL Bank, YES Bank, and Bajaj Finserv will severely be impacted as all their credit cards are on Mastercard platform. Even IndusInd Bank, Axis Bank and ICICI Bank have more than a third of credit card tied to Mastercard. For some players loss of business due to debarment of mastercard is two fold. Co-branded credit cards, which are tie-ups between banks and vendors/merchants and a particular card network will also lose business. It is a considerable size of business for many partners of Mastercard. On its platform there are many co-branded credit card: Axis bank with Flipkart or Google pay, SBI with Tata Capital or Club Vistara, RBL with bookmyshow etc. These partners of mastercard will lose new business until they integrate with a new system (Visa/ RuPay) which might take 2-3 months.
Implication: In future, businesses will be more serious regarding any new rule or regulation. They would be much more eager to comply not only because of threat of opportunity loss, but also loss of trust of business partners. If partners of Mastercard knew RBI would take such action, they would have convinced Mastercard(or threaten to end partnership) a long time back. During BS- III to BS-IV transition most manufacturer weren't prepared for strict enforcement by govt. & judiciary. But, they were much better prepared for BS- IV to BS- VI transition (Though sadly, COVID had different plans).
I think both govt. & various regulatory bodies can use this opportunity to let people know, they are ready to take strict (but fair) steps. If they point out to others that even giants can be tamed, future compliance will be must faster & smoother.
PS: If you want to know about all the misinformation regarding RBI's ban on Mastercard for new cards, please check out this article.
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