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How are RBL Bank and Yes Bank impacted by RBI’s Mastercard freeze?

Similar actions were taken against American Express and Diners Club in the past due to non-compliance with the RBI’s directives.

RBL Bank Ltd said on Thursday that it would start issuing cards on the Visa network, a day after the Reserve Bank of India ordered banks to stop issuing credit cards on its rival Mastercard’s network, as the latter hadn’t fully complied with a 2018 data localisation order. In a disclosure to exchanges obtained from the Bombay Stock Exchange that was first reported by CNBC-TV18, RBL said that it had struck a deal with Visa on the very same day that the RBI announced a freeze on credit card issuances from Mastercard. RBL said:

The Reserve Bank of India (RBI) imposed restrictions yesterday on Mastercard Asia / Pacific Pte. Ltd. (Mastercard) from on-boarding new domestic customers (debit, credit or prepaid) onto its card network from July 22, 2021. We await further information from Mastercard on RBI’s supervisory action. RBL Bank currently issues credit cards on the Mastercard network only. The debit and prepaid cards issued by the Bank are already enabled on other payment networks in addition to the Mastercard network.

Separately, RBL Bank Limited(“RBL Bank”) has entered into an agreement with Visa Worldwide Pte. Limited (“Visa”) yesterday to issue credit cards enabled on the Visa payment network. RBL 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.

RBL noted that its monthly run rate of 1,00,000 cards issued would be impacted by the supervisory action. However, existing customers of RBL will continue to be able to use their cards, according to an RBI press release. “As of date RBL Bank has approx. 3 million credit card customers and is the fifth largest credit card issuer in the country with approx. 5% market share,” RBL said in its disclosure.

Yes Bank exposed as well?

Based on Yes Bank’s website and information from Samsung Pay, it appears that Yes Bank also issues cards only on the Mastercard network. As such, they are likely to be impacted adversely by the RBI’s supervisory action as well. At the end of May, Yes Bank had 967,351 credit cards, likely all Mastercard ones, in circulation. MediaNama has reached out to the bank for comment; it has not disclosed details of its exposure to stock exchanges like RBL as of this report’s publication.

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RBI mandates data localisation, Mastercard says no country does this

The supervisory action by the Reserve Bank of India was due to non-compliance with a 2018 circular on Storage of Payment System Data. The RBI circular required that:

All system providers shall ensure that the entire data relating to payment systems operated by them are stored in a system only in India. This data should include the full end-to-end transaction details / information collected / carried / processed as part of the message / payment instruction. For the foreign leg of the transaction, if any, the data can also be stored in the foreign country, if required.

A deadline of October 2018 was initially given, but Mastercard doesn’t appear to be in compliance yet.

The Reserve Bank of India (RBI) has today imposed restrictions on Mastercard Asia / Pacific Pte. Ltd. (Mastercard) from on-boarding new domestic customers (debit, credit or prepaid) onto its card network from July 22, 2021. Notwithstanding lapse of considerable time and adequate opportunities being given, the entity has been found to be non-compliant with the directions on Storage of Payment System Data. — RBI Press release

In a statement to PTI, the card network said:

Mastercard is fully committed to our legal and regulatory obligations in the markets we operate in. Since the issuance of the RBI directive requiring on-soil storage of domestic payment transaction data in 2018, we have provided consistent updates and reports regarding our activities and compliance with the required stipulations. 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.

In 2018, Mastercard said that of the 200 markets where it operates, nowhere else had it been told to delete data of cardholders stored in other jurisdictions. PhonePe in 2018 said that foreign companies like Google and WhatsApp were resisting the order in order to avoid taxes.

In October 2018 itself, the following companies had complied with the directive:

  • October 9, 2018: WhatsApp confirms its compliance with the circular.
  • October 24, 2018: Alfred Kelly, CEO of Visa says that as of October 15, Visa is storing data locally.
  • October 30th, 2018: Amazon India says it has started storing payments data locally without mirroring in overseas servers.

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I cover the digital content ecosystem and telecom for MediaNama.

MediaNama’s mission is to help build a digital ecosystem which is open, fair, global and competitive.

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