Synopsis—With payments and data-protection regulations becoming more stringent globally, Mastercard has been feeling the heat in several markets, including India. The appointment of the former US envoy to India as its global policy head underlines the company’s focus on the country. Will the Indian-origin former diplomat be able to pull it off for Mastercard?
When Mastercard announced the appointment of Richard Verma as its executive vice-president of global public policy and regulatory affairs earlier this month, the Indian payments industry was in for a surprise. Because until then, it was widely believed that the former US ambassador to India was set to join the Joe Biden administration as a key official to handle its South Asia policy affairs.
“Rich is a proven leader with extensive experience in public policy, geopolitics, trade, and international law,” Mastercard CEO Ajay Banga said in early December, an announcement that some industry insiders termed ‘premature’, as US President-elect Biden was yet to announce the names of the people who would serve in top roles in his administration.
But the industry believes that Biden’s loss is Mastercard’s gain, especially at a time when the Purchase, New York-based payments network is facing regulatory heat in India. According to some foreign-policy experts, Verma’s transition to the new role is the need of the hour for Mastercard, as the seasoned Indian-origin American diplomat can help the company in policy matters.
Known as “ambassador Rich” among his peers, the 52-year-old will oversee the company’s public policy, regulatory affairs, and litigation teams around the world and report to Tim Murphy, general counsel, Mastercard. Verma, who has more than 25 years of international experience across senior levels in business, law, diplomacy, and even the US Air Force, is joining Mastercard from The Asia Group, where he served as vice-chair and partner. He was the US ambassador to India from 2014 to 2017.
“With his expertise and strong relationships worldwide, Rich will be a key counsellor to industry leaders and governments on the global move to a digital economy,” Murphy said.
The India connection
India has always been a key market for Mastercard, which has had a good run in the country under the leadership of Banga, one of the longest-serving Indian CEOs of the company. Shares of Mastercard have recorded spectacular gains under Banga, who is known for his steadfast decision making, especially in the Indian market.
With Banga preparing to step down from his current role early next year, Verma’s appointment comes at an opportune time for the India-focused company, which has been facing challenges over the last five years amid changes in payment regulations. The former top diplomat has his task cut out.
In June 2018, Mastercard’s top global-policy executive reportedly stated in a letter to the Office of the United States Trade Representative that the Indian government’s ‘nationalistic’ posturing was hurting Mastercard’s plans in that country. According to policy experts, the company has faced a backlash from the Indian government since the incident.
“The regulatory environment for financial services, more broadly digital services, is tightening in India and a lack of clarity on competition policies is making it even more difficult for foreign companies to continue to invest in India,” says Puru P Trivedi, vice-president – corporate affairs, Meridian International Center, a public-diplomacy organisation, which works closely with the United States Department of State.
According to him, the conflict of interest in India’s payments system is quite evident. “The conflict of interest is quite troubling, as NPCI is overseeing the payments system and has a virtual monopoly in the Indian retail payments system through its operation of various government payment platforms and systems,” Trivedi adds.
Even though the top multinational payment networks in India (Visa, Mastercard, and Amex) are all US-based, the government’s increased focus on domestic card-payments service RuPay — conceived and launched by the National Payments Corporation of India (NPCI) in 2012 — has been eating into their market share.
On December 16, 2020, the NPCI introduced the RuPay contactless (offline) feature, which also provides reloadable wallets within RuPay cards for day-to-day transit payments. The new feature is aimed at transforming the transaction experience for customers by deploying enhanced near-field communication (NFC) technology and innovative card-payment solutions, which used to be the forte of foreign card networks. Keeping pace with NPCI’s aggressive push with the help of technology would be the biggest challenge in India for payment networks such as Mastercard.
“The regulatory environment for financial services, more broadly digital services, is tightening in India and a lack of clarity on competition policies is making it even more difficult for foreign companies to continue to invest in India.”
— Puru P Trivedi, vice-president – corporate affairs, Meridian International CenterMoreover, Visa’s aggressive Asia strategy should be a cause of worry for Mastercard. A report by payments-industry data firm Nilson, titled ‘Global Card Brands-2018’, ranked Visa at No. 1 in terms of purchase transactions globally. China Union Pay took the second spot and was followed by Mastercard. According to Nilson’s latest report on the international credit-card industry, Mastercard has a mere 11% market share in the Asia-Pacific region. In comparison, Visa has 16%.
In September 2020, Mastercard entered into a partnership with State Bank of India and Titan Company to launch India’s first NFC chip-enabled contactless payment watches with all the functionalities of a standard contactless SBI debit card.
A challenging road ahead
“Diplomacy is about soft power. Part of that is ease of doing business — how welcoming is the market to investors?” the policy expert quoted earlier says. According to him, Verma’s foremost priority will be to “spell that out to the Indian government”, and that too diplomatically.
Meanwhile, his former colleagues vouch for his suave style of working. For instance, ambassador Verma was quick to utilise the biggest industry forum in India — the annual convention of the Federation of Indian Chambers of Commerce and Industry (Ficci) where Prime Minister Narendra Modi delivered the inaugural address. Emphasising on stronger US-India ties, Verma said, “They [Modi and Biden] are great leaders and are fully aware of the criticality of the [US-India] partnership.”
Now, let’s take a look at the top legal and regulatory challenges ahead of Verma for the next 100 days.
- 1. Guarding Mastercard from governments’ protectionist policies:
- 2. Steering payments-industry regulations: The General Data Production Regulation (GDPR) has created several obstacles for payment networks. With regulators increasingly seeking to regulate payment systems such as Mastercard, Verma has a tough task at hand. Payment-data localisation is already a big regulatory hurdle for payment companies in India. “A number of regulators and policymakers around the globe are using the GDPR as a reference to adopt new or updated privacy and data-protection laws, including in the US (California), Argentina, Brazil, Chile, India, Indonesia, and Kenya,” Mastercard said in its latest filing with the US Securities and Exchange Commission. Central banks and regulatory bodies around the world are also increasing formal oversight of the entire e-payments industry. In some countries, regulators are also considering designating certain payment networks as “systemically important payment systems” or “critical infrastructure”.
- 3. Interchange rates: The fees associated with four-party payments systems are being challenged and reviewed around the world. Interchange rates are key to merchants’ acceptance of a network product. While the US and the European Union (EU) are leading these policy changes, this will be another challenge for Verma, as he will have to ensure that merchant groups don’t seek interchange-rate reductions through legislation, competition law, or even central-bank regulation or litigation.
- 4. Privacy, data, and information security: With the US and the EU tightening the grip around payment-data laws, India could be the next in line. Even though the personal data-protection bill is still in the works, with the payments-data localisation mandate given by the Reserve Bank of India, Verma and his team could be entrusted with some tough policy manoeuvring. Can Verma successfully lobby to overturn this decision with his legal expertise? Industry experts believe it’s likely.
- 5. Cyber intelligence: Covid-19 is making digital transactions a new normal even in a country like India, which is primarily a cash-driven economy. There has been a phenomenal rise in online transactions during the pandemic and, consequently, the payments-security industry, too, has got a push. According to Nilson, card-related frauds are expected to reach USD32.04 billion by 2021 from USD28.65 billion in 2019.
“Covid-19 has caused massive disruption throughout the world. Globally, the payments industry has a serious shortage of trained cybersecurity professionals and India is not immune to that problem. According to an industry report, India needs a million cybersecurity professionals and falls well below that number,” Lance Johnson, executive director at Payment Card Industry Security Standards Council, tells ET Prime.
Industry watchers think Mastercard’s value-added products and services for the payments industry in cybersecurity and intelligence would come handy for Verma to align with the Indian government in its fight against payment frauds.
Besides, Verma is also likely to be tasked with ensuring that Mastercard’s key investments in Indian tech startups yield results. For instance, in 2018, Mastercard invested in Pine Labs, one of Asia’s leading merchant e-commerce platforms. The partnership with the Noida-based startup is seen as fundamental to building innovative payments solutions. Verma will be looking at this partnership from a policy perspective to bring about desired results. Apart from Pine Labs, Mastercard has also invested in payments-solutions company Razorpay.
The bottom line
With Banga set to hand over the mantle to Michael Miebach, currently the company’s chief product officer, Mastercard will be going through a transition in the near future. For Verma, the next 100 days will be certainly eventful.
Further, with regulations governing payments and data protection becoming increasingly stringent in the country, Verma has an uphill battle in front of him. Mastercard is betting big on Verma’s expertise as an astute attorney and diplomat to help the company grow in one of its key markets even in adverse circumstances. Clearly, Verma is Mastercard’s trump card in India.
(Graphics by Mohammad Arshad)