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17-07-2021|Asia

The RBI's decision to prohibit Mastercard from issuing new cards may hit 5 private banks.

The Reserve Bank of India's (RBI) move to ban Mastercard from issuing new cards for failing to follow local data storage requirements might affect five private banks, a non-bank lender, and a major card issuer. As these players switch to other card networks, the impact is expected to last a few months.

RBL Bank, YES Bank, and Bajaj Finserv are the most affected by the ban, according to Nomura Research, because all of their credit card schemes are linked to Mastercard. According to the research, IndusInd Bank, Axis Bank, and ICICI Bank each have 35-40% of their credit card programmes tied to Mastercard. Despite the fact that Mastercard is responsible for 45 percent of HDFC Bank's credit card schemes, the lender is not affected in any way because it is already prohibited from issuing new cards.

SBI Cards, a significant card issuer, would also feel the heat as a result of Mastercard's prohibition (see table), though its tiny exposure means minor damage.

In an exchange statement, private sector lender RBL Bank, the fifth-largest credit card issuer, announced it had cobbled together a deal with Visa to issue credit cards. After the technology integration, which is expected to take 8-10 weeks, the bank expects to be ready to start issuing credit cards on the Visa payment network. In the meantime, it expects its monthly run rate of 100,000 new credit cards to be impacted.

“For new credit card issuance, we are investigating a migration to other systems for a seamless transition,” YES Bank, which had an exclusive tie-up with Mastercard for credit card issuance, told Business Standard.

Private bank card issuance is expected to slow down, according to experts. During this time, their other sources of income may suffer a minor setback. Public sector banks, on the other hand, will be unaffected because they are increasingly issuing cards on the RuPay card payment network.

“There would be lesser issue of credit cards for a few months, depending on who has how much proportion of Mastercard,” Suresh Ganapathy, associate director, Macquarie Capital Securities, said. Debit card issuance may also be slower,” he added, adding that the problem was due to a supply shortage that will be resolved in following quarters.

“At this point, it appears to be an 8-12 week issue,” he added. Many people may switch to RuPay for debit cards, and banks will switch to Visa for credit cards.

                                                            

The impact on players will differ depending on their affiliations with other card networks and the type of cards they are playing. RBL Bank, for example, has a Mastercard partnership for credit card issuance, but its debit and prepaid cards are also available on other payment networks. YES Bank's debit cards are also available on the Visa and RuPay platforms, according to the bank.

Banks that have exclusive agreements with Mastercard are required to form alliances with other networks. Co-branded credit cards, which are tie-ups between banks, vendors/merchants, and a specific card network, are also a source of worry. Following the suspension, new Mastercard co-branded cards will no longer be issued.

On the Mastercard platform, Axis Bank, one of India's leading credit card issuers, has a co-branded credit card with Flipkart. On the Mastercard platform, SBI Credit Card has co-branded credit cards with Tata Capital and Club Vistara. On the Mastercard platform, RBL Bank has a co-branded credit card with Bookmyshow.

According to Axis Bank's annual report, it sourced nearly 200,000 credit cards through its relationships with Flipkart and Google Pay in FY21. “Despite the pandemic delaying acquisition for a few months, the bank's hallmark card proposal ‘Flipkart Axis Bank Credit Card' reached a key milestone of 1 million cards in force (CIF) in a record time of 20 months since its launch,” the bank said.

Axis Bank did not respond to an email requesting comment. “We have a diverse product offering on different networks, including Rupay, Visa, Mastercard, and American Express,” an SBI Cards spokeswoman stated. Because there are just a few co-brand credit cards on the Mastercard network, our new customer acquisition impact is minimal.”

It should be noted that the RBI ban only applies to new card issuances; existing card operations is unaffected.

Visa is the largest participant in the market, followed by Mastercard and RuPay, according to industry estimates. However, Mastercard is thought to hold a privileged position in the industry. RuPay is considered as a disruptor, catching up to its worldwide counterparts quickly. While data on card operators' market share isn't publicly available, the National Payments Corporation of India reported earlier this year that RuPay had a market share of 34% by volume and 30% by value.

According to the latest figures from the Reserve Bank of India, there are 902.3 million debit cards and 60.23 million credit cards in circulation. In debit cards, all three players holds a significant share of the market but in the case of credit cards, Visa and Mastercard are the dominant players.

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