RBI ban on Mastercard impacts banking ecosystem

The country’s central bank, Reserve Bank of India (RBI), has imposed restrictions on Mastercard Asia / Pacific (Mastercard) in relation to on-boarding new domestic customers (debit, credit or prepaid) onto its card network from July 22 onwards.

RBI has taken the supervisory action under the Payment and Settlement Systems Act, 2007. As per the legislation, payment system operators like Mastercard are authorised to operate a card network in India.

The current action is rooted in RBI’s development and regulatory measures from 2018-19, when it took note of the considerable growth in the payment ecosystem across the country.

"Such systems are also highly technology dependent, which necessitate adoption of safety and security measures, which are best in class, on a continuous basis,” the central bank had said in its monetary policy on April 5, 2018.

Subsequently, RBI gave all system-providers a period of six months to ensure that all data relating to payment systems operated by them is stored in a system only in India. This included data, such as end-to-end transaction details, information collected, carried or processed.

RBI had set October 15, 2018 as the deadline for compliance for the same.

In its press release yesterday, the RBI said that “notwithstanding lapse of considerable time and adequate opportunities being given, the entity (Mastercard) has been found to be non-compliant with the directions on storage of payment system data.”

Implications of the RBI order

While RBI has directed MasterCard to advise all card-issuing banks and non-banks to conform to its directions, the order will not impact existing customers of Mastercard.

Among MasterCard’s network of bank and non-banks, RBL Bank was the first to respond to the RBI action. RBL Bank, the country's fifth-largest credit card issuer, has a base of nearly 3 million customers in India.

“We await further information from Mastercard on RBI’s supervisory action,” RBL Bank said in a stock exchange filing on Thursday. Currently, RBL Bank issues credit cards on the Mastercard network only, while the debit and prepaid cards issued by it are already enabled on other payment networks in addition to the Mastercard network.

RBL Bank wasted no time, and has already entered into an agreement with Mastercard’s international competitor, Visa, to issue credit cards enabled on the Visa payment network. RBL Bank expects to start issuance of credit cards on the Visa payment network after the technology integration, which could take eight to 10 weeks.

RBL Bank’s current monthly run rate of approximately 100,000 new credit-card issuances will be impacted as its technical integration with VISA takes place, RBL Bank stated in the stock exchange filing.

Mastercard’s competitors like Visa and homegrown Rupay have an opportunity to cash in on the development.