Visa, a US-based payments multinational, has expressed its reservations about the Indian government’s promotion of RuPay, the country’s homegrown payments system, to the US government, according to a report in Reuters. The company raised these concerns in an August 9 meeting between U.S. Trade Representative (USTR) Katherine Tai and its executives, including CEO Alfred Kelly, the report added.
The firm elaborated that these concerns stem from India’s “push to use transit cards linked to RuPay” and “the not so subtle pressure on banks to issue” RuPay cards, Reuters reported.
“Visa remains concerned about India’s informal and formal policies that appear to favour the business of National Payments Corporation of India” (NPCI), the non-profit that runs RuPay, “over other domestic and foreign electronic payments companies,” as per a memo accessed by the news agency.
The memo is an about-turn from Visa’s public position in which it minimised the threat from RuPay. It is also an acknowledgment that RuPay could hurt Visa’s dominance in an important market like India where it dominates the payments space.
How has the Indian government promoted RuPay?
One of the issues cited by Visa was that Finance Minister Nirmala Sitharaman had told bankers to only promote RuPay cards over other card networks. Sitharaman had said that she did not think it was necessary for banks to issue any cards other than RuPay ones, especially when the card network is going international.
RuPay, which was developed in 2012 by the National Payments Corporation of India, corners 63 percent of India’s 952 million debit and credit cards as of November 2020, according to data shared by Reuters.
Visa officials at the USTR gathering also flagged PM Modi’s 2018 speech in which he urged Indians to use RuPay cards to honour their patriotism, the news website revealed. Mastercard, its closest rival, had also lodged a similar complaint with USTR in 2018, Reuters wrote in its report.
Payments companies run-ins with data localisation guidelines
Major card networks like Visa, Mastercard, American Express, among others have been hit by a 2018 directive from the Reserve Bank of India asking all payment processing companies to store their data in India. The RBI said that it was imperative to store data in India for security and investigation purposes.
Many international companies did not comply with the order in time, leading to a ban on issuing cards. The companies which had to face the ban included American Express, Diners Club, and Mastercard. It prompted a USTR official to label the guidelines as “draconian”.
The RBI barred American Express and Diners Club in April this year whereas Mastercard joined the list of barred entities in July. While the restriction imposed on Diners was lifted on November 9, Mastercard and American Express continue to be barred.
How did Visa escape the ban?
Visa, however, did not suffer from any restrictions because it reportedly complied with the guidelines. This allowed the company to capture a large market share in the credit card space because it was the only major international card operator in India for a while.
But earlier this month, MediaNama found that nineteen out of the sixty-nine authorised payment system operators did not submit a System Audit Report (SAR) for the financial year 2020-21 as required by the RBI. Visa was one of them.
The central bank began demanding the annual submission of a SAR from all authorised payment system operators starting this year amidst the increasing number of cyber-security attacks and data breaches targeting Indian companies. A SAR covers the security practices of a company among other things.
But as part of the data localisation guidelines, payment companies had to furnish a SAR covering compliance in terms of data storage, maintenance of database, data backup restoration, and data security. So Visa had to have submitted a SAR to show its compliance, which makes its absence from the list provided by RBI strange.
It could be that Visa submitted a one-time SAR to prove that it satisfies the data localisation guidelines but did not submit the annual SAR required by RBI.
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