India’s ban on Mastercard is a booster shot for RuPay and a tough signal to Big Tech

In a move that shows RBI’s firm stance on data localization, the central bank of the country has banned Mastercard, the United States-based payments company, from acquiring new customers for not complying with data localization directives.

The global digital payments agencies did not store the data in India and never paid a single penny in taxes. Previous governments could not take any strong steps against these multinationals because India did not have any payment interface of its own.

After the country developed its own infrastructure of payments with UPI and Rupay, RBI ordered foreign companies to save all the data for transactions taking place from October 2018, on the servers in India. “All System Providers were directed to ensure that within a period of six months the entire data (full end-to-end transaction details/ information collected/carried/ processed as part of the message/payment instruction) relating to payment systems operated by them is stored in a system only in India,” said the RBI 2018 circular.

The major digital transaction multinationals – Visa, Mastercard – had said that they will comply with the order. Although Visa decided to comply with Indian norms of data localization, Mastercard tried to play a rebel like Twitter and decided to not do the same despite repeated warnings from RBI in the last three years.

In the pre-Modi era, international digital transaction players like Visa, Mastercard were involved in monopolistic practices as they were the sole players. They used to charge customers an outrageous processing fee and had made card payments an elite practice. The Modi government launched the country’s own digital payments system and built infrastructure to encourage digital payments, and today it is the world’s most successful payments infrastructure in the world.

Now, foreign companies will also be taxed as per the tax laws of India. Till now these companies were out of the tax net of the country because they operated in India through offices in tax heaven countries like Singapore and stored data in jurisdictions of the United States and Ireland. Given the fact that these companies have ‘permanent establishment’ in the country which means a physical presence through data servers, they will be taxed at 15 percent, the tax rate for the companies which have invested in the country through their arms in countries like Singapore with which India has tax treaties.

The companies like Visa and Mastercard which behaved in a ruthless manner when the country did not have a digital payments infrastructure have now accused the government of monopolistic behavior. But from an Indian perspective, it will be teaching a lesson to the multinationals which earlier used to indulge in a show of muscle, for narrow self-interest. Every nationalist Indian will be happy with the government’s move to force these multinationals for data localization and taxing them for benefit of the country.

The ban on Mastercard to acquire new customers would benefit the Rupay and UPI payments ecosystem. A few months ago, India overtook China in the number of digital payments per month, and given the fact that the country has such a robust payments infrastructure, it will definitely not entertain the whims and fancies of American giants like Visa or Mastercard. The ban on Mastercard is also a message to big tech companies like Facebook, Amazon, and Twitter that as long as you are ready to comply with the law of the land, you are welcome otherwise you would face the same fate as Mastercard.