Foreign credit card companies such as American Express, MasterCard and Diners club have been barred by RBI to take new customers.
Companies such as MasterCard are Payment System Operators that run card network of banks and non-banking entities.
The issue is regarding the storing of customer data locally in India. The RBI has put the date of stoppage as July 22. MasterCard is said to be the biggest loser.
The RBI had given MasterCard a time period of three years to comply with data localization rules. It has not complied with the requirements.
In April this year, American Express and Diner club card companies were also barred from expanding their new customer base.
The rules are applicable to new users that were planning to join the network. It does not cover existing customers of the company.
Until RBI lifts the ban, banking and non-banking companies cannot use payment network of these companies to enroll new customers.
The companies that remain as options for customers are Visa and home-grown RuPay. It may not create long-term problem but short-term implications are not ruled out.
Banks looking for bringing in new customers will have to either choose RuPay or Visa for partnership as MasterCard has been in suspension.
Bajaj Finserv, RBL bank and Yes bank will be the most affected ones as majority of their business is tied up with MasterCard.
MasterCard, Diners and American Express also have tie up with HDFC bank. Similarly, Axis bank and ICICI bank are also MasterCard dependent.
RBI had initiated a new rule in 2018 that mandated that all system providers were required to store their payment related data of customers in India.
Global payment providers were resisting the move due to lack of clarity, costs, security problems and data localization demand from other countries.
RBI supervises all payment and transactions taking place in India. Clearing and settlement between different entities are enabled by RBI.
India’s digital payment ecosystem is growing tremendously since last couple of years. This requires additional security for user data.