RBI Bans Mastercard – Burning Issues – Free PDF Download

Card issuer Vs Card network

• A credit card issuer is the bank or NBFC that issues you the credit card. HDFC Bank, ICICI Bank, SBI Card are a few examples of credit card issuers in India.
• On the other hand, credit card networks act as the bridge between the card issuers and the merchants.

What has happened?

• The Reserve Bank of India (RBI) has barred Mastercard Asia Pacific from onboarding new credit, debit and prepaid card customers with effect from July 22 as it failed to comply with data storage norms.
• The US-based network is the second-largest credit card issuer (after Visa) in India and the RBI’s stand could have implications on foreign relations.
• The central bank has been pushing regulated entities to store data relating to Indian customers on Indian soil since April 2018.

Is Mastercard the only one?

• Mastercard is the third card network to be barred by RBI this year, after American Express and Diners Club were similarly prohibited from onboarding new customers in April.
• This leaves just Visa and Rupay as the only card networks allowed to take in new customers.
• The RBI had also prohibited private sector lender HDFC Bank from adding new credit card customers and launching digital businesses in December last year.
• The action was taken after HDFC Bank’s digital payment services were hit by a series of technical outages.

But why this step by RBI?

• The data storage rule enforced in 2018 mandates that-
• Payment system providers store the entire payment data in systems located only in India, except for processing cross-border payments.
• Data sent abroad for processing should be deleted abroad within the prescribed timeline and stored only in India.

Mastercard’s response

• “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.
• Building on our considerable and continued investments in India, we remain committed to working with our customers and partners in advancing on the government’s Digital India vision,” Mastercard said.

Impact?

• The RBI order will not affect existing customers of Mastercard.
• Also, a majority of banks are not expected to be affected as they often have relations with multiple networks and thus could continue to issue debit and credit cards using Visa or Rupay networks.

Which bank will be impacted?

• RBL Bank said on Thursday that its credit card issuance rate will be impacted.
• The lender currently issues credit cards on the Mastercard network only.
• However, the bank 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.

• Mastercard’s share is roughly a third of the total cards market in India while peer Visa is the biggest player.
• Analysts believe that the impact of this ban would be felt on banks’ credit card spends in the current quarter.

Card spending already down

• Credit card spends took a hit in April and May due to the second wave of the pandemic.
• As such, growth in credit card spends have slowed over the past one year as Indians pruned their discretionary spending in the aftermath of the pandemic.

Q) Which of the following is correct regarding RuPay?

1. It was launched by Finance Ministry.
2. The RuPay card work only in India.

1. 1 only
2. 2 only
3. Both 1 & 2
4. None of the above

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