Business & Economy

RBI will ban MasterCard from July 22nd, 2021, will it impact banking?

MasterCard, an American multinational finance services corporation founded in 1979  acts as a bridge between the card issuer and the merchants for payments. It has tie-ups with many financial institutions and provides debit, credit and prepaid cards through which the payments are made easy.

Reserve bank of India (RBI) through a notification stated that it will be banning MasterCard Asia Pacific from issuing cards to new customers from July 22nd, 2021 for not following the guidelines given by RBI in 2018. According to the guidelines the payment system providers had to store the data of all the transactions in India and not to be exported outside India except for cross-bordering payments where the data can be sent abroad for processing purpose and after which it must be stored only in India and not elsewhere. 

The prohibition by RBI will not affect the existing customers of MasterCard. Most of the banks have tie-ups with MasterCard and the existing customers will not have any problem but the banks cannot issue cards to new customers and will have to continue issuing cards using Visa or Rupay. 

MasterCard is the second largest credit card issuer after Visa. It holds 1/3 of the total market shares. The restriction imposed by the RBI might affect the foreign relations. The banks which are issuing only MasterCard credit cards will be impacted the most. One of the banks which recently gave a statement on the same was Ratnakar Bank Limited (RBL) which had tie-ups only with MasterCard and it will take another 8-10 weeks for them to issue new cards using Visa. The ban might also affect the credit card spending’s this quarter which had already reduced in the month of April and May due to the second wave of pandemic. 

MasterCard in the third card network on which restrictions are imposed. Earlier this year RBI also prohibited American Express and Dinner’s Club on similar grounds.  

In India there was MasterCard, American Express, Dinner’s Club, Visa and Rupay. After the restrictions imposed on 3 of these companies, Visa, the largest card network in India and Rupay are allowed to take new customers. 

Not just card networks are facing these prohibitions, but in the year 2020 HDFC bank was also banned from issuing new credit cards to its customers as the digital payment services were hit by a series of technical outages.   

MasterCard has replied on being disappointed with such a restriction imposed by RBI and has given assurance that they will look into the matter and find a solution for it and want to support and promote the Digital India Campaign and continue to be a part of it. 

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