After taking action against card issuers American Express and Diners Club in April, the Reserve Bank has now imposed restrictions on Mastercard, a much larger player in the credit and debit cards space, citing violation of data storage norms. The move is likely to impact the cards business of several lenders.
Private banks, in particular, are likely to be impacted more as most public sector banks have, in the last few years, focused on issuing homegrown Rupay cards.
RBL Bank, Yes Bank and Bajaj Finserv, in particular, are likely to be impacted the most, as their entire credit cards business was tied to Mastercard, according to a research report. Kotak Mahindra Bank on the other hand has all its credit cards tied to Visa. Most others have tie ups with at least two among Rupay, Mastercard and Visa.
RBI restricting Mastercard from onboarding new customers means lenders will be unable to expand their cards business tied to Mastercard in the short-term at least, and may look to switch to other platforms like Visa and/or Rupay, say analysts.
RBL Bank, which has about 3 million credit card customers and is the fifth largest credit cards issuer in the country, announced Thursday that it has entered into an agreement with Visa Worldwide to issue credit cards enabled on Visa’s payment network. The bank expects to start issuing Visa credit cards post the technology integration that is expected to take 8-10 weeks.
“In the interim, our bank’s current run rate of approximately 100,000 new credit card issuances per month could potentially be impacted till such time that there is clarity from the regulator on issuing new credit cards on the Mastercard network or till the technical integration with Visa is complete,” it said.
Why did RBI impose restrictions on Mastercard?
The RBI had issued a circular in 2018, directing all system providers to ensure that within a period of six months the entire data, which included full end-to-end transaction details, relating to payment systems operated by them, would have to be stored in India only, and any such information processed abroad would have to be brought back within 24 hours.
Mastercard had not complied with it, said the RBI.
“Notwithstanding lapse of considerable time and adequate opportunities being given, the entity has been found to be non-compliant with the directions on storage of payment system data,” the RBI said, restricting Mastercard from onboarding new credit, debit or prepaid card customers on its network from July 22.
There will, however, be no impact on the existing customers of Mastercard.
On April 23, the central bank had barred American Express and Diners Club from onboarding new customers for the same reason of non-complying with data storage norms. American Express as well as Diners Club are comparatively small players in India’s credit cards space, unlike Mastercard. Visa is the biggest player in the market, while homegrown Rupay has also been growing in the last few years, particularly driven by its adoption by state-owned lenders as well as urban cooperative banks.
Both Visa and Rupay are likely to benefit as banks will look to switch from Mastercard or at least add new products on Visa and/or Rupay. However, that switch can take months. In the interim, credit card issuances by banks could slow down. Co-branded cards tied to Mastercard will be impacted the most as banks won’t be able to issue them.
“If a particular Mastercard co-branded credit card has a high contribution to the overall mix of a credit card player, it will have a higher impact on the issuer’s business growth,” according to analysts at ICICI Securities.
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In its response, Mastercard has said it is fully committed to its legal and regulatory obligations in the markets it operates in and is “disappointed” with the RBI’s move.
“Since the issuance of the RBI directive requiring on-soil storage of domestic payment transaction data in 2018, we have provided consistent updates and reports regarding our activities and compliance with the required stipulations. While we are disappointed with the stance taken by the RBI in their communication dated July 14, we will continue to work with them to provide any additional details required to resolve their concerns,” it said.
It also added that building on its considerable and continued investments in India, it remains committed to working with its customers and partners in advancing the government’s Digital India vision.