Mastercard’s ban of issuing new debit and credit cards in India is a win for India’s own payment systems, but it has some downsides, too.
In a statement on July 14, the Reserve Bank of India (RBI) said Mastercard had failed to comply with its 2018 data storage rules (pdf) so the regulator would have “unrestricted supervisory access.” The ban on Mastercard will come into effect on July 22. RBI’s move will not impact existing customers of Mastercard.
In India, most banks offer four types of debit and credit cards: Visa, Mastercard, Maestro (part of Mastercard), and RuPay. Only RuPay is Indian, and the sector has been dominated by foreign players until its launch in 2012.
Experts believe RuPay could be the one player that sees exceptional gains now that one of these four is out of the picture. It is primarily due to the Indian government’s tough stance against foreign card companies in recent years.
As the government seems focused on making homegrown products successful, the dependence on foreign brands will be reduced.
Additionally, UPI (Unified Payment Interface), a partly state-owned digital payment system, would benefit from the ban. Payments via UPI, which are made from one account to another without specifying beneficiaries, can be used as a substitute for cards. UPI is easier, faster, and more secure than card payments, which makes it a contender to replace them. UPI payments also do not have transaction fees, unlike credit cards.
What is ‘RuPay’ card?
Now, the RuPay Card is an indigenous card which works on ATMs and merchant outlets and helps in reducing cash transactions. It is India’s own payment gateway. It was launched on March 20, 2012, by National Payments Corporation of India (NPCI). Its aim is to reduce the foreign gateways’ monopoly.
When Visa and MasterCard were available, why was the RuPay card introduced instead?
As a result of the lack of a domestic card, domestic banks had no option but to rely on Visa and MasterCard for connectivity between cardholders, merchants, and issuing banks not just within the country, but globally. Due to their overseas connectivity, these foreign or American companies charge a high rate. Transactions involving debit and credit cards issued by domestic banks are routed through overseas network switches owned by Visa or MasterCard. Rupay, however, eliminates the need for this connectivity. Banks will have to pay 40 percent less for clearing and settling each transaction on the RuPay platform than on other international platforms.
The domestic system is meant to gradually replace payment settlement providers like MasterCard and Visa, which now control all payments and settlements that happen through cards. It facilitates electronic payment at all Indian banks and financial institutions.