RBI’s ban on Mastercard will hurt banks in near term

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    RBI’s ban on Mastercard will hurt banks in near term


    Restrictions on Mastercard hurt more because of its large share but a similar imposition on Visa will play havoc on card spends in the country. As such, some lenders have begun to migrate to Visa from Mastercard

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    Indian banks may see card spends and new card issuance take a beating after the Reserve Bank of India (RBI) banned Mastercard from on-boarding new customers.

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    Mastercard’s share is roughly a third of the total cards market in India while peer Visa is the biggest player. Most banks have tie-ups with multiple card network operators. That said, co-branded cards

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    tend to have only one specific operator. Analysts believe that the impact of this ban would be felt on banks’ credit card spends in the current quarter. “If a particular Mastercard cobranded credit card has high contribution to the overall mix of a credit card player, it will have a higher impact on the issuer’s business growth,” wrote those at ICICI Securities Ltd in a note.

    The central bank banned the card network operator citing violation of data storage norms. “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,” the RBI said. In 2018, the RBI had mandated that all payment system providers must store their data in a localised system and not outside of India. The central bank imposed restrictions on American Express and Diners Club in April this year over same grounds.

    The restrictions on Mastercard hurt more because of its large share but a similar imposition on Visa would play havoc on card spends in the country. As such, some lenders have begun to migrate to Visa from Mastercard. RBL Bank in a notice to exchanges today has said that it has entered into an agreement with Visa to issue cards to its customers. But, it would take RBL Bank 8-10 weeks to start issuing cards based on Visa’s network.

    Meanwhile, credit card spends took a hit in April and May due to the second wave of the pandemic. As such, growth in credit card spends have slowed over the past one year as Indians pruned their discretionary spending in the aftermath of the pandemic. Credit cards are a high-yielding retail credit product for banks. Ergo, restrictions on global card companies spells trouble for retail credit growth on which banks have come to rely immensely.

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