India approved a Rs. 1,300 crore plan to promote domestic RuPay debit cards and low-value digital transactions to boost their use in marginalized populations, in a move that could challenge the power of rivals such as Visa and Mastercard.
Under the plan, the government will pay banks a percentage of the value of transactions made through RuPay debit cards and low-value direct interbank transactions for one year, retroactive to starting in April 2021, a government statement said.
The plan could further threaten the domestic market share of rivals Visa and Mastercard. Earlier this year, Visa complained to the US government that India’s “informal and formal” promotion of RuPay was hurting it in one of the key growth markets.
The scheme would cover reimbursement of digital transaction processing fees up to Rs. 2,000 rupees, government officials said.
“It will also help make digital payment methods accessible to unbanked and marginalized populations,” the government said, referring to those outside the formal banking and financial system.
Payments Council of India, an industry association, said the sector would “benefit greatly from this initiative”.
As of November 2020, more than 600 million RuPay debit cards have been issued by banks.
Deepak Chandnani, head of Worldline, a payment and transaction services company in South Asia and the Middle East, said the move would provide a significant boost to RuPay.
“An acquiring bank incurs an end-to-end fee of about 15 basis points per transaction for processing and other fees for debit card transactions. This incentive will provide a much-needed respite to acquiring banks and encourage further digital transactions,” Chandnani said.
Started in 2012 by National Payments Corporation of India (NPCI), a government-backed non-profit organization, RuPay competes with Visa and MasterCard for the burgeoning digital transaction market in Asia’s third-largest economy.
Finance Minister Nirmala Sitharaman has publicly asked banks to promote RuPay cards to boost digital transactions in the country.
Mastercard and Visa view India as a key growth market, but have been rocked by a 2018 central bank directive to store payment data “only in India” for “unlimited access by regulators”.
Banks are currently not allowed to issue Mastercard cards to new customers after it was determined that the US payment giants had not fully complied with data localization rules.
© Thomson Reuters 2021
