After MasterCard, Visa cries hoarse as PM Modi puts his weight behind RuPay

• The number of monthly digital payments in India are greater than that of the USA, China, and the UK, combined.
• India, with its robust digital payments infrastructure, no longer needs foreign players like Visa, MasterCard, or American Express, which used to behave in a monopolistic manner.
• The Indian government has asked the banks, consumers, and other stakeholders, to issue and use RuPay cards.

In the last few years, India has emerged as the undisputed global leader in digital payments. The number of monthly digital payments in India are greater than that of the next three – China, United States, United Kingdom – combined.

Given the fact India has a very robust digital payments infrastructure, the country no longer needs foreign players like Visa, MasterCard, or American Express, which used to behave in a monopolistic manner, earlier. These card payment players not only charged hefty fees to consumers, but also used to blackmail political establishments from time to time.

However, with the establishment of digital payments infrastructure, it is time for the Indian government to teach American MNCs a lesson, and it is doing exactly that.

The RBI has already imposed several restrictions which pushed American Express out of the Indian market, and stopped MasterCard from issuing new cards. Now Visa, the only American player that is still issuing new cards, has also started complaining about the Indian government prioritising RuPay cards.

Also read: PM Modi takes India’s RuPay to Saudi Arabia. A major win for an Indian technology and brand

Earlier, Visa put a brave face about the competition from RuPay cards (issued by National Payments Corporation of India, a PSU under Ministry of Finance), and said that the entry of a strong and technologically advanced public sector player does not hurt its business.

“That’s going to be something we’re going to continually deal with and have dealt with for years. So there’s nothing new there,” said Alfred Kelly, Visa executive.

But, now it has been revealed that at the same time, it was complaining with the United States Trade Representative (USTR) about the Indian government.

“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,” said a USTR memo prepared for Tai ahead of the meeting.

RuPay accounted for 63% of India’s 952 million debit and credit cards as of November 2020, according to the most recent regulatory data on the company, up from just 15% in 2017.

However, despite accounting for 63% of the market share in terms of number of cards, RuPay still has a low share in number of transactions. Visa and Mastercard remain dominant players in the number of transactions.

The Indian government, including Prime Minister Modi and Finance Minister Nirmala Sitharaman, have asked the banks, consumers and other stakeholders, to issue and use RuPay cards. And this is not going well for RuPay and Mastercard, which fear losing the Indian market altogether.

In the pre-Modi era, international digital transaction players like Visa and MasterCard were involved in monopolistic practices, as they were the sole players. They used to charge customers an outrageous processing fee, and made card payments an elite practice. The Modi government launched the country’s own digital payments system, and built infrastructure to encourage digital payments; 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-haven countries like Singapore, and stored the data in jurisdictions of the United States and Ireland.

Also read: How RBI’s MasterCard ban is helping VISA, UPI and RuPay

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% 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 regulations imposed in the last few years, and competition from Indian players, is forcing the players which used to behave in monopolistic manner, to indulge in ‘fair competition’.