In public, Visa Inc has always downplayed concerns about the rise of RuPay in India, which is one of its key markets. However, the US government memos, as Reuters report revealed earlier this week (1), Visa has expressed concern about India’s “even playing field” during a meeting held on 9th August between the company executives, including its CEO, Alfred Kelly (2), and the USTR, US Trade Representative.
It is worth highlighting that back in 2018, Mastercard Inc had raised similar concerns, privately, with the USTR. The company had protested with the USTR that the honorable Indian Prime Minister, Shri Narendra Modi, uses nationalism to promote the domestic network RuPay (3).
“Visa continues to be concerned about India’s formal and informal policies that seem to favor the business of NPCI, National Payments Corporations of India, the non-profit backing RuPay over other local and overseas electronic payments companies,” stated a USTR memo made for Tai before the meeting.
We have not received any response to a request for comment from Visa.
Notably, our Prime Minister has promoted homegrown RuPay for years. And it has posed a challenge to Mastercard and Visa in the rapidly growing payments market.
As per the most recent regulatory data, as of November 2020, RuPay accounts for 63 percent of India’s more than 952 million debit and credit cards used, up from only 15% in 2017.
Notably, most of these RuPay cards are debit cards. And only 970k RuPay credit cards were issued during the said period. Visa continues to lead with a 44% market share in the credit card business, closely followed by Mastercard with 37% share.
In an industry event held in May, Kelly stated that there had been a lot of concerns that domestic networks like RuPay could be “potentially problematic” for Visa for years. However, he stressed that Visa had remained a market leader in India.
“That is going to be something we are going to continuously deal with and have dealt with over the past many years. Therefore, there is nothing new,” stated Kelly.
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Indian Leaders “Promoting” RuPay
In a 2018 speech, Modi portrayed the use of RuPay as patriotic. “Everyone can’t go to the border to protect our country. However, we can still serve the nation by using the RuPay card.”
And when Visa raised its concerns with USTR in the gathering, it cited Modi’s speech where they alleged that Modi asked India to use RuPay to show service to the country, as per an email US officials exchanged on the meeting.
Nirmala Sitharaman, the Finance Minister of India, also stated last year that “RuPay is the only card banks should promote.” Notably, the Indian government has promoted a RuPay-based card for public transportation payments.
Visa told the US government that it was concerned about India’s push to use RuPay-linked transit cards and “the not so subtle pressure on Indian banks to issue” RuPay cards, seen in the USTR email.
Notably, Visa and Mastercard count India among their key growth markets. Yet, they whine when a central bank asks them to store data in India over data privacy and security concerns.
The Reuters’ report cited it as “unfettered supervisory access,” which appears to be portraying the Indian government in a bad light (4). Especially since all other major economies, including the US, Russia, and China, also mandate data localization.
India has always remained open to foreign investors and companies to do business in the country. The data localisations measures by the Indian government are not very stringent. They effectively allow data flow across borders as long as it is sensitive or critical, such as our name, contact details, Aadhaar details, Pan number, and other payment-related data.
In fact, in 2019, the government further relaxed it and allowed such data to be processed overseas, provided that they are stored locally, and deleted from the overseas systems within 24 hours (5).
Despite that, payment operators like Visa, American Express, Mastercard, and Diners Club complained that they would have to incur substantial costs to establish the digital infrastructure needed to store data within India. The same country they count as their key market.
So far, the RBI, the Reserve Bank of India barred Mastercard, Diners Club, and American Express from onboarding new customers and issuing new cards in two separate orders when they failed to comply with the April 2018 norms despite giving these companies six months to adhere.
The RBI also stressed that no existing customers of these countries would be affected.
Yet, according to a Reuters’ report published in September, a USTR official privately called India’s ban on Mastercard “draconian.”
Notably, while RuPay dominates the number of cards in our country, most transactions are still processed via Mastercard and Visa. And, most Indians still use Visa to make payments on international payment gateways since RuPay is yet to gain global recognition.
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The Rise of RuPay in India
Back in 2009, RBI asked the Indian bank Association to build a non-profit payment company to design an indigenous payment card. It was initially called India Pay. NPCI, after years of planning, proposed the RuPay (a portmanteau of two words: Rupee and Payment) card. It conceived it as a domestic alternative to Visa and Mastercard and consolidated and integrated different payment systems pan India.
In its vision paper 2009-2012 about payment systems in India (6, 7), RBI stated that there is a need for such a system because of the lack of a domestic price setter that is causing Indian banks to bear high affiliation cost and the connection with foreign associations schemes like Mastercard and Visa. It stated that India is even in a grimmer need to route its domestic transactions, accounting for over 90% since most are processed outside the country.
India officially launched its homegrown debit card payment platform, RuPay, about a decade ago in March 2012 by the RBI and NPCI (8). RuPay was dedicated to India only until August 2020, when NPCI launched an international subsidiary called NIPL, NPCI International Payments Limited, to increase globalization and the availability of RuPay in international markets (9).
At its launch, RuPay debit cards were accepted at 91k ATMs and over 6 lakh POS, point of sale terminals across India. And as of March 2021, the market share of RuPay by traction volume at 34% and 30% by value in India (10).
Also, India launched RuPay to encourage more debit card usage, especially in small towns and rural locations.
The biggest lure of signing up to Rupay’s network for banks is lower costs and not “not so subtle pressure” by our PM as many western media portray.
Consider this; foreign payment systems charge banks as much as 50k USD to banks as joining fees. In comparison, costs for services of RuPay are almost nonexistent. Since domestic technology is used for RuPay, it reduces banks’ costs in issuing and managing debit card transactions by as much as 40%.
In addition, charges per transaction are almost half of what other foreign payment companies charge (11).
And since lower costs for banks translate into lower costs for customers, there has been a greater acceptance, especially among individuals who only do domestic transactions considering its lower processing fees.
On 21st October 2021, considering RBI guidelines on card payment, NPCI launched TROF, Token Reference on File service to help share unique token reference ID numbers instead of actual card details between banks, merchants, and customers for transactions to curb hacks and identity theft (12).
On 17th November 2021, NIPL signed MoU, Memorandum of Understanding with UK-based PPRO Financial to expand the acceptance of RuPay into international markets, especially in the US and China, which makes about half of all foreign transactions from India. Notably, 777 million+ Indian consumers have shopped internationally in 2021 (13).
Since its inception, NPCI has launched several consumer and commercial products, including RuPay Business, RuPay Pro, RuPay debit card, RuPay credit card, contactless payment features, RuPad Combo, RuPay Prepaid, etc.
As of 2021, RuPay cards are accepted at almost all ATMs pan India. As per the data published by NPCI, there are over 200k ATMs in India and over 2.6 million PoS terminals in India, consisting of the RuPay network. PayPal, Amazon, and Apple also accept it. We are not sure whether Google Play accepts it or not. However, the site has only stated Visa and MasterCard as an available mode of payment; hence it may not be valid yet (14).
Apart from India, it is internationally accepted in countries like Singapore (since 2018), Bhutan (2018), Maldives (2019), UAE (2019), Saudi Arabia (2019), Bahrain (2019), Myanmar, Burma (2020), Australia (2020), and the home country of BTS – South Korea (2020). Reportedly, India is also in talks to launch Rupay in the Philippines.
As more countries start accepting RuPay cards, Indian businesses and tourists can save on the exchange rate.
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The Market Share of RuPay
Indian banks are authorized to issue RuPay cards to their customers for ATMs, PoS terminals, and ecommerce transactions. Its market share rose from 0.3% in 2013 to 50% by 2018. Notably, as of February, over 628 million RuPay cards have been issued across all categories, including debit, credit, prepaid, and commercial cards (15).
RuPay used to charge transaction processing fees, about 23% less than those charged by Visa. It charged a flat fee of 0.6 INR per transaction from the acquiring bank and 0.3 INR from the card-issuing bank (16). However, from 1st January 2020, NPCI eliminated all MDR merchant discount rate charges (17).
By June 2017, RuPay had surpassed Visa as the largest payment card network in India by transaction volume, recording 375 million transactions. As per NPCI data released in may 2019, over 1127 million transactions valued at 17 billion USD were made on RuPay cards during the FY 2018.
By 2019, RuPay held over 58% market share by issued number of cards, 30% by volume of PoS transactions, and 25% by several online transactions (18).
In FY 2019, RuPay reported 1 billion transactions via both offline and online merchant payments model, a 70% than 667 million transactions reported in FY 2018, as per the data from the RBI and NPCI. In terms of value, RuPay cards recorded a surge of 80%, beating overall payments made via debit cards which ballooned 30% compared to the previous financial year (19).
Notably, during the coronavirus pandemic, the consumer usage of RuPay products within the country was hovering between 87% and 98% by spending volume. On the other hand, the spending volume of its foreign counterparts, aka Visa and Mastercard, was between 70% and 86% because of the overall reduction in discretionary spending in 2020 (20).
It is also worth mentioning that RuPay cards witnessed a major boost because of the PMJDY, Pradhan Mantri Jan Dhan Yojana, since only RuPay cards were issued to account holders under the initiative. As of March 2021, a total of 308.5 million RuPay debit cards have been issued under the scheme.
“Yes, there was a big push from PMJDY. It gave a fillip to RuPay cards in its initial days,” stated Pravin Rai, CEO of National Payments Corporation of India (21).
However, numbers seem to be declining since the number stood at 242 million in June 2018.
A report by IIT Bombay also suggests that banks have started preferring Visa over RuPay because of the zero merchant fees, citing economic reasons (22).
“It is shocking to see a rising gap between PMJDY accounts added and the number of RuPay debit cards issued. Unless there are other causes, a possible trend for it could be banks deliberately moving away from RuPay and promoting others that generate more revenue for them,” stated Ashish Das, a statistics professor at IIT-Bombay, and author of the report mentioned above (Suggested Reading: Big Impact on Banks with Fintech Players Entering the AMC Space).
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Now, you may feel that we prefer RuPay over Visa. Because of two major reasons, RuPay is a secure payment option similar to Visa or Mastercard, but unlike them, RuPay is made for Indians by India. There are fewer data privacy and security concerns since our data with RuPay is not shared with any other country.
In addition, since a non-profit organization backs RuPay, there are lesser costs for both merchants and customers, unlike Visa or Mastercard, which are for-profit companies.
However, we can’t deny that Visa is an internationally successful payment gateway. It dominates its home market (the US) and the international market.
While RuPay has made significant progress over the past few years, it is still in its infancy. But, regardless, India needs to successfully establish its own payment network instead of relying on Visa.
Why? The reasons are similar to why India needs to rely less on China. If, in any case, the US turns hostile towards India – which it has done so over almost a century, it can demolish our economy only by forcing Visa to stop its services in India.
Of course, it is improbable, especially since India is a growing market for US companies, yet, India needs to be self-reliant.
But think about it: what would you do if you were traveling on a budget? And Visa halts its services for your card. Now imagine that same thing happening to our entire nation.
Hence, RuPay needs to dominate our market to add another layer of economic immunity. We are not entirely left or right, or if this section unintentionally sounds nationalistic.
Still, you can’t deny the possibility, especially after experiencing what happened between India and China less than two years ago.
And of course, about the concerns of Visa as we wrote at the beginning, most individuals continue to prefer Visa, especially premium users, and travelers, because of the benefits gain like loyalty points, access to airport lounges, accommodation benefits, airline benefits, state of the art tech for fraud detection and reduction, rich expertise, and dedicated customer service internationally that too toll-free like most industries. Read this private Indian bank you charge us to connect with customer service (23).
All in all, Visa, you are still the most preferred card both domestically and internationally.
So, the upcoming years will be interesting and challenging for RuPay. NPCI will need a great amount of incentive and excellent execution on all fronts to take over Visa. A much-needed dominance India needs.
It will be fascinating to see how everything comes together for RuPay. Keep an eye out for more information!