The RBI action on MasterCard, restricting it from onboarding new domestic customers from July 22, is a reminder to multinational financial services entities to play by the rules. While these entities want to make the most of the large market offered by a young workforce with growing income levels and aspirations, they have been found wanting when it comes to complying with evolving regulations. Despite the RBI directing all payment system providers in 2018 to move the storage of all data — including transaction details, information collected from clients and payment instructions — to servers in India, MasterCard was found non-compliant. The time of six months initially given to comply with the rules has already been stretched to three years, and there was no reason for the central bank to continue adopting a benign attitude.
Payment systems involving debit and credit cards have been registering scorching growth— a compounded annual average rate of 35 and 33 per cent in volume and value, respectively, over the last 10 years. This fast growth brings with it the additional responsibility of monitoring the transactions to ensure that the privacy of the users is not compromised and the payment channel is not misused for illegal activities. With these payment systems being highly technology-dependent, it is necessary to adopt robust safety and security measures. The central bank needs unhindered supervisory access to data stored with these system providers, intermediaries and third party vendors. Such access is possible only if the data is stored onshore. With action having been taken against American Express Banking Corp and Diners Club International in May this year on the same grounds, the central bank is sending a signal that it is not willing to compromise on breach of its regulations any more.
This skirmish provides an opportunity for the Centre to further develop the domestic card – RuPay. According to the RBI, countries with domestic cards have made better progress towards cashless economy. Since its launch in 2017, share of RuPay in the total number of cards issued in India, has grown from 15 per cent to 60 per cent; it currently enjoys 30 per cent of transaction value. While the basic ecosystem for RuPay cards is in place — with all banks onboarding the platform, around 30 lakh merchant terminals being RuPay enabled and 90,000 online merchants with range of offers in dining, shopping, entertainment and so on — there is a perception among the users that the card is not good enough for the middle and high income individuals. The NPCI can work towards improving the awards programmes and fee structure to make it on a par with MasterCard and Visa. Further, the brand perception of the RuPay card needs to be improved, so that it is viewed as a viable alternative by all. That will exert competitive pressure on multinational payment system providers to follow the regulations better and further improve their offering and fee structure.