Busting the misinformation related to RBI's decision to ban Mastercard

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.

Background

RBI circular on Storage of Payment System Data dated April 6, 2018 mandated all system providers to ensure that within a period of six months the entire data (full end-to-end transaction details / information collected / carried / processed as part of the message / payment instruction) relating to payment systems operated by them is stored in a system only in India. It also directed them to report compliance of the same to RBI by Oct 15, 2018 and to submit a Board-approved System Audit Report (SAR) conducted by a CERT-In empanelled auditor by Dec 31, 2018.

Misinformation 1: RBI banned Mastercard.

- NO! RBI has barred Mastercard for issuing new cards from July 22, 2021. The existing cards in circulation are still usable.

Excuse 1: Fine would have been more appropriate punishment than a sudden ban. It will cause painful experience for not just Mastercard but it’s partner banks & customers. A advance warning would have been better.

- On April 6, 2018 notification deadline window is clearly mentioned as 6 months. It has given notice and warning multiple times as a gesture of goodwill over last 39 months. Now, I can see why someone would mistake it as empty threat due to previous considerate behaviour (or inaction) of RBI. But on April 23, 2021, RBI barred AMEX & Diners Club International from issuing new cards from May 1, 2021 for similar reasons. This was a clear warning for others to comply. I suspect Mastercard thought due to their large market share, RBI won’t take the same drastic step. Fact of the matter is those, who find 39 months not enough for compliance of rules & regulations whose original window was only 6 months, would never comply unless some drastic steps are taken. Being disobedient, unruly & lazy is not same as being a victim.

Excuse 2: RBI directive of April 6, 2018 would increase their infrastructure costs and hit their global fraud detection platforms.

- RBI’s 2018 directive wasn’t taken in haste. GOI (Govt. of India) had made it stand clear a long time back. It has encouraged & advised for local and more secure data storage (& not just for financial data) for years before RBI issued its directive. When these players are earning so much money from Indian market, they are rightly expected to live by local laws & address the concern of local customers & govt. Why should confidential & sensitive data of Indians be available to foreign agency/govt? Keeping the data in India won’t be a problem for fraud detection if they are ready to invest in additional infrastructure which anyway is much lesser than amount of money they earn here. And this will also make the transaction faster & cheaper because the data isn’t sent to a different server half way across the globe. But they don’t want to talk about that just like in the case of MDR. Many industry players are asking to reinstate MDR which were relaxed last year for many types of transactions by GOI. They talk about loss of revenue but not cost saving from handling less cash.

Most for-profit organizations have one motive, no matter how much they pretend to care about “people” or pretend to be the flag bearer of free-speech, it’s always more profit. If they wish to harness the opportunity they need to follow local laws, they can’t be left unchecked like colonial powers to exploit everything without giving anything back. (Hey Twitter, are you listening?)

Misinformation 2: Customers have much to lose from the bans on international card networks as it will leave Indians with limited options.

- There is no ban on any card network for being “international”, even RuPay’s platinum card is being used internationally in many countries. A better term would be “foreign” but that also is wrong as these networks were banned because of where they saved the data of Indians not because of their country of origin.

Day by day the options for Indians are increasing not decreasing. There are so many innovative, cheaper & more secure, more accessible options/systems out there: Online payments wallets, Unified Payment Interface (UPI), BharatQR, Bharat Interface for Money (BHIM), Adhar Enabled Payment system (AEPS). Similar options (in terms of feature) are not available is many of the developed countries.

Misinformation 3: After ban on American Express & Diners club, its customers flocked to RuPay which is owned by RBI’s National Payments Corporation of India (NPCI). RuPay was already a dominant player with a market share of around 60% in November 2020. It will capture considerable market of Mastercard, which currently accounts for nearly 33% of all card payments in India.

- This statement is extremely manipulated. First, American express, Diners club & Mastercard were barred from adding new customers, so their existing customer have no reason to switch unless they are not happy with their service. Mastercard’s market share of 33% is in terms of share of value of transaction, whereas RuPay’s market share of 60% is in terms of share of total cards issued. RuPay’s market share is only 30% by value & 34% by volume (considerable yet a far cry from 60%). For businesses, the share of value is more important than share of volume & I doubt they even care for share of total cards issued. A shopping mall cares about paying customers not window shoppers. An e-commerce site cares more about how many orders it generates, than how much traffic it has.

RuPay’s high market share in total cards issued is due to the fact that 306mn free RuPay debit card was issued to 416.5mn accounts under PMJDY (as of January 2021). The reason why only RuPay was considered is also simple: RuPay is developed by NPCI which is a non profit organization with a shareholding base of 67 entities including many PSB, private banks & NBFC. RBI had asked IBA (one of the stakeholders in NPCI) to develop a non-profit indigenous payment card in 2009 for this particular reason (& to make debit card more accessible).

Misinformation 4: This is done with a vendetta. Indian government has adopted a series of protectionist measures to the detriment of global companies.

- As per Reuters report Mastercard had complained to the Office of the US Trade Representative on June 21, 2018 that Modi “associated the use of RuPay cards with nationalism, claiming it serves as ‘kind of national service’." This was PR nightmare not for GOI, but for Mastercard. This led to big backlash by Indian public & hashtag #BoycottMastercard was trending in twitter for some time.

So why did the Indian PM took such a risk which might warrant backlash from USA? Because GOI is accountable to Indian public not US govt. It has every right & duty to protect our economic interest. Indian public & businesses should have a clear idea on where their money is going. In case of RuPay, transaction fees stay within India and “could” (“could” being the operative word) help build infrastructures like roads, schools and hospitals, whereas in case of foreign card payments it goes to other countries (mostly USA), plus it also hits our foreign reserve. If it is acceptable for for-profit foreign companies to promote their product by saying “Rs 1 will be donated to girl child education for every pack of ‘X’ you buy”, then why it is not okay for PM to educate his public & promote a non-profit organization?

In reality, there are more important reasons to use RuPay. Data with customer purchases stays within the boundaries of the country. So, transactions through RuPay cards are more secure & faster. The merchant discount rate (MDR) is zero for RuPay cards (& UPI) meaning it is cheaper for merchants. The marginal/non-existent issuance & recurring fee of RuPay means it is cheaper for card holders as well.

The biggest reason is Indian public won’t be at the mercy of foreign companies. In March 2014 many Russian tourists & businessmen were stranded penniless abroad as Visa & Mastercard stopped their cards without any warning. This was done at the behest of US govt. which had put sanction against Russia after it formally annexed Crimea. It’s true that India-USA relation is stable; it’s also true that Visa/Mastercard is a better card for those travel frequently to different countries, still it is very important to know all the risk associated with using foreign card networks & taking active steps to minimize our risk.

In the end, it was a just & fair step taken by RBI, unlike what people with vested interest portray it to be (unsurprisingly they never talk write about China’s Union pay).

PS: If you want to know the bigger possible implication on Indian businesses of this decision, please check out this article.