Banning RBI Mastercard: Banning RBI Mastercard is likely to create a monopoly in the credit card market in India

The Reserve Bank of India’s (RBI) ban on Mastercard is likely to create a virtual monopoly in the Indian credit card market, with US-based card network Visa likely to capture a significant chunk of new business which was previously entrusted to its global rival.

While local platforms are expected to gain modestly, Visa’s superior rewards offerings to merchants and the government’s zero merchant discount rate (MDR) rule on the National Payments Corporation of India (NPCI) are likely to place 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 an important franchise partner for the bank, but the good part is like in most of our businesses, we favor open architecture,” said Sashidhar Jagdishan, MD, HDFC Bank. “Whether it’s cards, insurance, mutual funds, we distribute a lot of business products. Even in cards, we have a lot of franchisees – Visa, Mastercard or Rupay. So until the Mastercard ban is lifted and our ban is lifted, the new cards could be on either platform.

According to a source, several prominent co-branded partnerships such as Flipkart and Axis Bank and Indigo and Kotak Mahindra Bank were also on Mastercard. These contracts should now go to Visa.

Another area where Visa can thrive is the promising commercial credit card space where Mastercard and Visa have currently cornered the entire market. “These are usually cards issued for corporate purchases and spending on these cards ranges up to Rs 500 crore per month for large corporations,” a payments manager said. “RuPay has no exposure in this space; therefore, almost all new contracts on this coin are expected to be landed by Visa.

Visa is also likely to have the upper hand in securing new debit card-issuing deals. The central government’s zero MDR rule on RuPay debit cards means that private sector banks that were linked to Mastercard will switch almost exclusively to Visa.

“Banks cannot make money from RuPay debit transactions. Unless there is a mandate as with public sector banks, most others will not be forced to transfer their network from Issuing cards to RuPay as it will not earn them any money. This puts Visa in a very advantageous position in the Indian market,” an industry official said.

When it comes to the debit card, most major banks have multiple links with the three major card networks and switching the issuing infrastructure internally would not be a major challenge. However, for some banks such as RBL Bank and Yes Bank that had an exclusive tie with Mastercard, the new RBI dictate may affect their plans.

RBI does not disclose the share of Mastercard and Visa in the global payment system. Most banks have both Mastercard and Visa and in some cases RuPay as the payment platform for the 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 needs,” said another private lender who had co-branded with Mastercard. “But we think onboarding to a new platform could take around two months.”

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