RBI's ban on Mastercard likely to create monopoly in India's credit card market

The Reserve Bank of India‘s (RBI)
ban on Mastercard is likely to create a near monopoly in India’s credit card market, with the US-based card network Visa likely cornering a significant chunk of the new business that earlier went to its global rival.

While homegrown platforms are expected to gain modestly, Visa’s superior reward offerings to merchants and the government’s zero Merchant Discount Rate (MDR) rule on National Payments Corporation of India (NPCI) is likely to put Visa in an advantageous position.

Private lender HDFC Bank, which is currently facing its own ban on onboarding new card customers, already has plans to roll out debit cards under Visa and RuPay.

“Mastercard is a significant franchise partner for the bank, but the good part is like in most of our businesses, we patronise on open architecture,” said Sashidhar Jagdishan, MD, HDFC Bank. “Whether it’s for cards, insurance, mutual funds, we distribute a lot of company products. Even in cards, we have a lot of franchisees – Visa, Mastercard or Rupay. So, until the ban on Mastercard is lifted and when our ban is lifted, the new cards could be on either of the platforms.”

According to a source, several leading co-branded partnerships such as those of Flipkart and Axis Bank and Indigo and Kotak Mahindra Bank were on Mastercard as well. These contracts are now expected to go to Visa.

Another area where Visa can prosper is the up and coming commercial credit card space where Mastercard and Visa currently have cornered the entire market. “These are typically cards issued for corporate purchases and spending on these cards go up to Rs 500 crore a month for large sized companies,” said a payments executive. “RuPay doesn’t have any exposure in this space; therefore, almost all new contracts on this piece are expected to be landed by Visa.”

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Visa is also likely to have an upper hand in getting new debit card issuance contracts as well. The central government’s zero MDR rule on RuPay debit cards means that private sector banks that were tying up with Mastercard will almost exclusively move to Visa.

“Banks cannot make money through RuPay debit transactions. Unless there is a mandate as with public sector banks, most others won’t be compelled to shift their card issuance network to RuPay as it won’t make them any money. This puts Visa in a seriously advantageous position in the Indian market,” said an industry official.

On the debit card, most leading banks have multiple tie-ups with all three major card networks and internally switching the issuance infrastructure would not be a major challenge. However, for certain banks such as RBL Bank and Yes Bank which had exclusive tie up with Mastercard, RBI’s new diktat could affect their plans.

RBI doesn’t disclose the share of Mastercard and Visa in the overall payments system. Most banks have both Mastercard and Visa and in some cases RuPay as their payment platform for cards.

“We have already taken note of the situation and will soon be moving to the Visa platform for most of our debit and credit card requirements,” said another private lender that had co-branded with Mastercard. “But we believe that the onboarding to a new platform could take about two months.”



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