Modi government has shown that it is not going to bow down to external pressure, yet again. Only last month Visa had complained to the US government that India’s “informal and formal” promotion of domestic payments rival RuPay hurts the American major in a key market. Mastercard too had raised the issue in 2018.
Yet, as per a PIB update, Modi government has gone ahead with its Rs.1,300 crore incentive scheme to “promote RuPay Debit cards and low-value [upto Rs. 2,000) BHIM-UPI transactions.”
Why Visa and Mastercard are rattled by RuPay:
Visa and Mastercard are global leaders in card transactions. But in India’s case, RuPay, the card network by the National Payments Corporation of India (NPCI), managed to capture a 60% share of India’s card market in 2020 itself. The card network has managed to increase its market share from a humble 15% in 2017. The RuPay card was developed by National Payments Corporation of India (NCPI), which is promoted by the country’s central bank, the Reserve Bank of India.
For Visa and Mastercard, which are established card networks, the phenomenal rise of RuPay in India has been a huge challenge. Earlier, the international digital transaction players like Visa, Mastercard and American Express 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.
Now, the government incentive to RuPay cards is likely to help the card network further shore up its popularity. Union IT minister Ashwini Vaishnaw said that the aim of the latest incentive scheme is to make more people “move towards digital payments”. Under the latest scheme, the government will incentivise the acquiring banks by paying a percentage of the value of transactions through RuPay and BHIM-UPI.
Mastercard banned by RBI:
In July, the RBI banned Mastercard from authorising new cards. A press release by the RBI had stated, “The Reserve Bank of India (RBI) has today imposed restrictions on Mastercard Asia / Pacific Pte. Ltd. (Mastercard) from on-boarding new domestic customers (debit, credit or prepaid) onto its card network from July 22, 2021.”
The ban on Mastercard is likely to further encourage RuPay card in acquiring new customers. With digital transactions rising rapidly in the country and overtaking such transactions in China, sky is the limit for RuPay card. And at the end of the day, RuPay is growing at the expense of Visa and Mastercard.
Mastercard and Visa had complained about RuPay:
In 2018, Mastercard had complained about RuPay card. It had written to the Office of the United States Trade Representative (USTR) that Prime Minister Narendra Modi “associated the use of RuPay cards with nationalism, claiming it serves as ‘kind of national service.”
Last month, Visa too complained to the US government that “Visa remains concerned about India’s informal and formal policies that appear to favour the business of National Payments Corporation of India over other domestic and foreign electronic payments companies.”
While Visa has publicly downplayed concerns about the phenomenal rise of the RuPay card, it is clear that the US-based multinational financial services corporation is clearly concerned about RuPay’s impressive performance.
However, the Indian government has its own sovereign policies, and therefore, despite allegations of protectionism by Mastercard and the recent complaint by Visa, the Modi government has gone ahead with an incentive scheme to promote use of RuPay and BHIM UPI. The message is loud and clear: India will promote RuPay card, and it doesn’t care in the least about complaints made by foreign entities to foreign governments.