The winners and losers from India’s Mastercard ban

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Indian business history is filled with tales of multinationals finding themselves on the wrong side of local authorities. Coca-Cola temporarily left the country in the 1970s under pressure to reveal its formula. Cairn Energy has spent years fighting a multibillion-dollar retrospective tax bill. Twitter engaged in a stand-off over contentious social media rules introduced this year.

Payments companies are the latest in the crosshairs. Last week, India’s central bank ordered Mastercard to stop adding new customers for failing to comply with data storage rules that were introduced in 2018. Existing customers are not affected but from Thursday, the company will be unable to issue any new cards. 

The Reserve Bank of India had already taken action against American Express and Diners Club International for similar violations in April. Of the large international card companies in India, only Visa remains.

The central bank’s data sovereignty rules, which were fiercely resisted by foreign firms, require all data relating to Indian customers to be stored exclusively in India.

The moves will have wide-ranging implications across India’s financial and fintech system, affecting everyone from established lenders to payments startups.

For Mastercard itself, the ruling is a severe blow in an important growth market. In 2019 it declared it was “bullish on India”, pledging to invest $1bn in the country over five years. Hundreds of millions of Indians are opening bank accounts, getting debit or credit cards and using mobile payments for the first time, and the New York-based company appeared well-placed to ride that wave, with 33 per cent share of the card market in 2020 according to payments start-up PPRO.

Banks that are heavily reliant on Mastercard for their debt or credit cards, such as Citibank and Mumbai-based RBL, face months of uncertainty. 

Even if Mastercard eventually manages to challenge the decision, some damage will already have been done: shortly after the ban was announced RBL said it struck a deal to switch its credit cards to Visa’s network, though the process would take up to 10 weeks and slow card issuance in the meantime.

Analysts expect the biggest winners to be homegrown. RuPay, a card system run by the National Payments Corporation of India, will be a natural choice for banks looking for a new debit card provider less likely to attract the ire of the RBI — the central bank itself established the NPCI with a consortium of Indian lenders.

It will also help accelerate the shift towards mobile money, which has been an Indian government priority. The NPCI’s Unified Payments Interface mobile money network allows cheap, instant transfers across bank accounts without cards. The volume of UPI transactions grew to 2.8bn in June, up from 1.3bn a year earlier.

This could give an indirect boost to the fintech start-ups and tech giants that have layered their mobile payments services on top of UPI, such as Google Pay and WhatsApp Pay. But the move will no doubt rattle some foreign fintechs who will wonder if they could one day also be judged to be in violation of the rules.

The RBI did not specify on what points Mastercard had failed to comply, nor why the move came nearly three years after the order went into effect. The company said it was “disappointed”, arguing that it had given the regulator “consistent updates and reports regarding our activities and compliance with the required stipulations”.

The fallout will feed into a wider global debate around localisation of data, particularly financial data. The RBI has justified its directive as a way to ensure regulators have “unfettered supervisory access” to relevant information, but critics argue such policies are counterproductive and protectionist.

Salman Waris, a partner at law firm TechLegis, said he expects Mastercard to challenge the order with the regulator and, if necessary, the courts. “These companies do not want to be seen as bowing to Indian government pressure,” he said. “If they do it here, they might be forced to do it elsewhere.”

Fintech fascination

More stories from the industry that caught our eye this week

Revolut’s bumper fundraising Revolut has become the most valuable private technology company in British history, raising a massive $800m fundraising round that it said valued it at $33bn. The investment was led by Softbank and Tiger Global, arguably the two firms that have done more than anyone else to fuel the recent boom in startup fundraising. Some observers — including the FT’s Lex column — are sceptical that the six year-old company has done enough to justify a valuation higher than high-street banking stalwarts like NatWest. However, Revolut chief executive Nikolay Storonsky is unperturbed, telling the FT he looks forward to proving doubters wrong. You can read more about the man who has driven the company’s growth in this profile piece.

Indian IPO frenzy A good chunk of the $800m Revolut raised this week will go to expanding in India, but it will face serious competition from the likes of Paytm. Like Revolut, Paytm started with a fairly limited payments business but has since broadened its ambitions to try to become a “superapp” catering to all customers’ financial needs. It is one of a string of Indian startups looking to take advantage of buoyant markets with a public offering in the coming months. A mooted $25bn market capitalisation would immediately send it into the ranks of India’s 25 largest companies but, as the story about Mastercard (above) highlights, the country is rife with regulatory risks. The FT’s correspondents in New Delhi and Singapore dig into the Indian IPO trend in this analysis piece, while Lex looks at Paytm’s numbers in more detail.

Apple and Goldman target Buy Now Pay Later Given how quickly “buy now pay later” specialists have been growing over the past year or so, it was inevitable that established companies would eventually decide they wanted a slice of the action. The likes of Klarna and Affirm could soon face competition from two of the biggest names in finance and technology. Apple and Goldman Sachs are reportedly working together on an “Apple Pay Later” service that would let shoppers split the cost of purchases across several months when paying via an Apple device. The rapid growth of BNPL, and particularly its popularity with young people, has provoked concerns in some quarters; FT business columnist John Gapper notes the risks in this piece, but still sees the sector as a chance to improve upon the flaws of traditional credit cards. 

Quick Fire Q&A

Stay up to date with up-and-coming disrupters. Each week we ask a fast-growing fintech to introduce themselves and explain what makes them stand out in a crowded industry. This week we spoke to Andy Mielczarek, chief executive and co-founder of Chetwood Financial, a digital bank backed by hedge fund giant Elliott, that has focused on consumer lending rather than the current accounts prioritised by many neobanks

When were you founded?

Chetwood was founded in 2016 on St Patrick’s Day

 Where are you based?

Wrexham, in North Wales.

Who are your founders?

I founded Chetwood with technologist and Director of Strategy, Mark Jenkinson (Jenks).

What do you sell, and who do you sell it to?

We focus on customer segments that are underserved by the market. We currently have lending and savings products across three brands; LiveLend, BetterBorrow and SmartSave.

How did you get started?

I knew the banking and regulatory space and Jenks knew the technology and operations side — before we knew it, we had an outline business model.

How much money have you raised so far?

We’ve raised over £150m of investment.

What’s your most recent valuation?

We haven’t priced an external investment transaction. All of our capital after the initial seed phase has come from Elliott.

Who are your major shareholders?

We had a number of seed investors who helped us get started. Since Elliott came on board in 2017, they have continued to support and back us as our main shareholder.

 There are lots of fintechs out there what makes you so special?

We want to create best in market products for underserved customers in innovative ways, such as our LiveLend Reward Loan, where the rate reduces as your credit score improves.

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