Mastercard: US payments-network firms are under Centre’s compliance scanner. Is Mastercard playing with fire? – The Economic Times

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SynopsisMastercard is having it rough from the RBI for failing to comply with the regulator’s data-localisation norms. Not many in the industry are with Mastercard on this. Whatever the case, Mastercard’s love affair with India, seeded by Ajay Banga, is on shaky ground. Richard Verma, Mastercard’s head of global policy, has a lot on his plate.

The year was 2018. The venue was the Indian consulate in New York. Ajay Banga, the then president and chief executive officer of Mastercard, was ready to deliver a speech at the inaugural New India Lecture and he seemed happy.

After all, Banga, eight years into his job, had made everyone smile ear-to-ear with what he and his team had done at the company. Under his watch, Mastercard’s market cap had climbed from USD30 billion to around USD180 billion.

In fact, he was particularly happy with how things were going in India, and the venue of the Indian consulate made for a perfect setting. “I congratulate the efforts of the things that are going on in India because instead of sitting around and saying why doesn’t somebody else do it, this government is trying to do it. Whatever else we may disagree with, this government is doing certain things,” he said.

Mastercard share price@2x

Fast forward to today, Banga must be eating his own words as his company struggles to comply with India’s payments-data localisation rules. After restricting American Express (Amex) and Diners Club from adding new customers in April this year, Reserve Bank of India’s (RBI) sword on ensuring compliance with payments data localisation norms — first revealed in 2018 — fell on US payments network and cards giant Mastercard in July.

The company seems to be struggling to make any headway in overturning the ban on new card issuance due to its alleged failure to comply with payments-data localisation rules.

Speaking to ET Prime on non-compliance by Mastercard, sources in the government said that US companies like Mastercard are playing with fire. They added that given Amex and Diners Club had already been flagged, Mastercard and other such companies should have been on guard. The sources added that the company is taking RBI’s 2018 data-localisation rules lightly. “For RBI, compliance for payments companies is the top priority. This is a complete compliance breach by Mastercard,” government sources said.

Interestingly, India’s strong stand on foreign companies comes when New Delhi has been gung-ho about India’s own payments network and card, RuPay, for the past two years. It is pushing the product globally under the Atmanirbhar campaign.

In its defence, Mastercard has reportedly submitted a new audit report to the RBI, as it seeks to overturn the ban on card issuance.

“Data localisation of this form is protectionist but appears to have been successful for India in creating a national champion in payments, and a domestic card scheme, something Europe had singularly failed to do,” an industry executive said.

Dealing with the elephant in the room
Mastercard isn’t enjoying any support from the industry for its stance. As a country-first wave grips the discourse, Indian and foreign players believe that if they have complied with RBI’s mandate on payments data localisation, a tech-centric company like Mastercard should have no problems in doing so.

An industry source says that it’s an issue of will, and a matter of seconds for a tech company like Mastercard to route data to Indian servers and delete the foreign copy. “It is an objective problem,” the source adds.

Meanwhile, the home-grown payments entity, National Payments Corporation of India (NPCI) is turning the tables on competitors. Its products like Unified Payments Interface (UPI) and Immediate Payments Service (IMPS) are being well received, and as stated earlier, the government has plans to take RuPay global.

RuPay, which holds a strong 30% debit-card market share, has the potential to dent the credit-card market share of foreign players like Visa and Mastercard.

Credit card penetration in the Asia-Pacific region in 2020@2x

“Cost efficiency is the key. While western products are self-serving, NPCI is customer oriented. Its products are far superior to anything that western companies have. And far cheaper as well,” another industry executive points out.

There are murmurs against RBI’s policies as well.

“The central bank creates rules but doesn’t want to tell companies why those rules make sense and what alternatives may be there to consider,” says an industry insider, criticising RBI’s policies.

Geopolitics of data localisation
The Indian government is going strong on cracking the money-laundering nexus and other illegal activities. So, RBI had argued in favour of payments data localisation to help nail the matter.

The tentacles of this issue, however, run deeper than just settling one end.

India is still struggling to crack the efficient handling of US-India Mutual Legal Assistance Treaty (MLAT) and is negotiating and expecting “reciprocity” in the US Cloud Act; Indian policymakers will not let go of the matter regarding Mastercard’s payment data localisation matter.

“Data localisation of this form is protectionist but appears to have been successful for India in creating a national champion in payments and domestic card, something Europe had singularly failed to do.”

— An industry insiderIndia is aware that personal identifiable information (PII) data is critical to Indian law-enforcement agencies and would be helpful in nailing illegal transactions.

Serving as a double whammy for US tech players is India’s Personal Data Protection Bill, which is currently hanging in balance.

The government’s salvo is heavy on the likes of Amazon, Flipkart, Twitter and now Mastercard. The picture is clear for US tech players: following the rule of the land is the only option to ensure they don’t lose out on the Indian market’s pie.

USTR vs. India
Meanwhile, the US Trade Representative (USTR), the US government’s authority responsible for developing and promoting the US trade policy, has been critical of India in its recent reports.

In May, USTR placed India on the IPR priority watch list as part of its annual 2021 Special 301 Report, along with countries like China, Russia, Saudi Arabia, Argentina, Chile, Indonesia, Ukraine, and Venezuela.

The report pointed to a lack of legal certainty regarding trade secrets, dissuading companies from entering into partnerships or expanding their business activities in countries like India and China.

The USTR increased its pressure on India in March, as it proposed retaliatory trade action against India and other countries that have imposed or are considering equalisation of levy on e-commerce companies.

Early March, another USTR report called out India’s ‘Make in India’ campaign to be epitomising the challenges facing US-India trade relationship.

Last week, USTR announced Dawn Shackleford as the assistant United States trade representative for south-east Asia and the Pacific. She replaces Karl Ehlers, who retired in May. Shackleford has filled a number of key roles at USTR, including most recently as Assistant United States Trade Representative for WTO and Multilateral Affairs.

The US trade policy division won’t bow down, as US businesses in India are facing continuous rants under the Biden administration.

“To a very large extent, the regulators are coming out with these regulations as a trade-barrier measure more than anything else,” an industry insider says.

Indeed, the Mastercard ban will be a key topic of discussion between the Indian and US counterparts as and when they meet. Former US ambassador to India, Richard Verma, the current head of global policy and regulatory affairs for Mastercard, will use all his diplomatic cards with Shackleford to overturn RBI’s decision.

India isn’t thinking of letting this go easily. “The diplomacy route on this for Mastercard could prove to be more dangerous,” a government source told ET Prime.

The bottom line
The Indian middle-class is moving fast in adapting to the cashless reality as the new normal, thanks to Covid-19.

India’s 1.3 billion population is being watched globally for trends, even though 20% of Indians are deprived of bank accounts.

Card schemes usage and banked population in India and China@2x

India’s dismal credit-card penetration of just 3% keeps it in the ranks of Vietnam and Indonesia, speaking volumes about Indians’ access to credit.

Seen from the financial-inclusion standpoint, the Mastercard issue is set to dent India’s ambitions if the ban continues and Mastercard keeps delaying the imminent regulatory compliance.

At the same time, payments-network companies like Mastercard that have been invested in India for a long haul, compliance to data norms should have been a no-brainer.

(Graphics by Mohammad Arshad)

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