The Market Impact of RBI's Restrictions on Mastercard

Reserve Bank of India (RBI) barred Mastercard from onboarding new customers in India. The restrictions are already in place for Diners and American Express and with such backdrop experts are expecting that it is Visa that seems to be in an advantageous position to strengthen its network in the country.

Homegrown RuPay is also likely to benefit and grow its network further, the financial market experts said.

The issuance of co-branded cards with Mastercard will also stop due to the RBI restriction. If a particular Mastercard co-branded credit card has high contribution to the overall mix of a credit card player, it will have a higher impact on the issuer's business growth, said an ICICI Securities report.

"Such restrictions, even on a temporary basis, will help improve market share for the respective unaffected incumbents," it said.

RBL Bank, which used to issue credit cards on the Mastercard network only, said on Thursday that it has entered into an agreement with Visa Worldwide Pte Limited (Visa) to issue credit cards enabled on the Visa payment network.

In a regulatory filing, RBL Bank said that it expects to start issuance of credit cards on the Visa payment network post the technology integration which is expected to take 8 to 10 weeks.

"In the interim, our bank's current run rate of around 100,000 new credit card issuances per month could potentially be impacted till such time 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 added.

RBL Bank and Yes Bank are the two banks to be most impacted by the restriction on Mastercard.

A Nomura report said that among the credit card issuers, including co-brand partners, RBL Bank, Yes Bank and Bajaj Finserv are most impacted, as their entire card schemes are allied with Mastercard.

HDFC Bank has 60 per cent of its card schemes tied to Mastercard, Amex and Diners, while for Axis and ICICI, this is about 35-36 per cent.

On the other hand, Kotak Mahindra Bank's card portfolio is entirely allied to Visa and hence it won't face any issues.

The Reserve Bank of India (RBI) on Wednesday imposed restrictions on Mastercard Asia/Pacific Pte Ltd from on-boarding of new domestic customers in the country on its card network.

The restrictions have been imposed as in spite of 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 Reserve Bank of India (RBI) has imposed (on Wednesday) restrictions on Mastercard Asia / Pacific Pte Ltd (Mastercard) from on-boarding new domestic customers (debit, credit or prepaid) onto its card network from July 22, 2021," the central bank said in a statement.

It, however, added that the order will not impact the existing customers of Mastercard.

In a statement, Mastercard said that it is committed to its legal and regulatory obligations and has worked closely with the RBI to ensure compliance of the data storage norms.

"We want to clarify that there is no impact on our current operations in India from the RBI's July 14 communication. Mastercard is fully committed to our legal and regulatory obligations in the markets we operate in. Since the issuance of the 2018 directive requiring on-soil storage of domestic payment transaction data, we have worked closely with the RBI to ensure that we comply with the requirements," it said.

"While we are disappointed with the stance taken by the RBI today (July 14), we will continue to work with them and provide any additional details needed to resolve their concerns. This is consistent with our considerable and continued investments in our customers and partners in India to advance the government's Digital India vision," said the statement issued by Mastercard.

As per the RBI circular on storage of payment system data dated April 6, 2018, all system providers were directed to ensure that within a period of six months, the entire data relating to payment systems operated by them is stored in a system only in India.

They were also required to report compliance with the RBI and submit a board-approved system audit report conducted by a CERT-In empanelled auditor within the timelines specified therein.

Earlier, the central bank had imposed similar restrictions on American Express Banking Corp and Diners Club International Ltd from onboarding new domestic customers to their card networks with effect from May 1, 2021. These entities too were found non-compliant with the directions on storage of payment system data.