The story so far: The Reserve Bank of India (RBI) on Wednesday banned Mastercard from issuing new debit and credit cards to customers in India with effect from July 22. According to the RBI, the U.S. card-issuer has failed to comply with the local data storage rules announced by the central bank in 2018. The ban has unsettled banks operating in India that use Mastercard’s services to issue a variety of cards to their customers.
What is the RBI’s data localisation policy?
In 2018, the Indian central bank had
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Existing Mastercard customers, however, can continue to use their cards. Earlier this year,
What is the need for local data storage?ADVERTISEMENT
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Experts believe that customer privacy and national security are genuine concerns that need to be taken seriously. However, many also believe that data localisation rules are too stringent and they could simply be used by governments as tools of economic protectionism. For instance, they argue, it may not be strictly necessary for data to be stored locally to remain protected. Broadly speaking, formal international laws to govern the storage of digital information across borders may be sufficient to deal with these concerns. Governments, however, may still mandate data localisation in order to favour local companies to foreign ones.
China, for example, has used its cyber-security laws to discriminate against foreign companies. A similar trend may be playing out in India with the Centre’s emphasis on economic self-sufficiency. In 2018, Mastercard had launched a complaint with the U.S. government that Prime Minister Narendra Modi was actively promoting Indian cards like RuPay and that it was affecting the business of foreign card companies. Governments may also believe that mandating foreign companies to set up local infrastructure can boost their local economies.
What lies ahead?
Indian banks that are currently enrolled in the Mastercard network are expected to make alternative arrangements with other card companies. The process is expected to take a few months, and their card business is expected to take a significant hit meanwhile. The RBI’s data localisation policy, as it burdens foreign card companies, may end up favouring domestic card issuers like RuPay. Mastercard owns about one-third of the market share in India, and the RBI’s ban is likely to significantly benefit its competitors. RBL Bank, for instance, has decided to enter into an agreement with Visa after the RBI’s ban on Mastercard. Similarly, the ban on American Express and Diners Club earlier this year benefited the Indian card network RuPay. Some believe that even Visa, a foreign company which dominates card payments in India, may come under regulatory pressure in the near future. Thus, the card payments sector may end up being restricted to a few domestic companies, which in turn can lead to reduced competition. This could mean higher costs and lower quality services for customers.
It is also worth noting that in today’s digital economy data have turned out to be a valuable commodity, which companies as well as governments have tried to gain control over. Information about spending patterns and other customer data can be monetised by companies in a variety of ways. With no clear rules on who owns customer data and to what extent, conflicts over data ownership are likely to continue for some time.