EXPLAINED NATIONAL

India’s Own RuPay Card Disrupts the Global Payment Network – Breaking the Hegemony

RuPay Card Success

Recently, various newspapers in India published a news regarding Mastercard, an American giant in the global payment industry, which lodged a protest with the US authorities about the meteoric rise of India’s RuPay card and Prime Minister Narendra Modi’s nationalistic push to it. Moreover, the complaint was due to the heat they are experiencing because of this growing competition in India.

Global Payment Network including the Indian market has been dominated by international players like Visa, Mastercard and American Express for long. These cards played a significant role in the payment systems due to their interoperability across the merchants, banks, and users. In a nutshell, they connected almost everything in the payment network. It is due to this reason that these companies swallowed up a huge market share in many countries, including India, where the popularity of plastic money started rising around the year 2000.

Background of the Issue
  • These cards have been used as a tool of hegemony that the United States of America employs all over the world just like its currency Dollar or navigation system like GPS. At the time of crisis, these tools can be used by the USA to interrupt the system in other countries. You can imagine what will happen in India if all of a sudden, all users with Visa and Mastercard are not able to make payments! This is definitely an issue of strategic threat to the nation.
  • The usage of these cards causes a great loss of the precious foreign exchange as they charge a fee on every transaction. Importantly, this is not just about the fee that these players in the payment processing industry collect, it is actually about the mechanisms through which economy of other countries like India can be enslaved by controlling the float and keeping track of fiscal information of all sorts.
  • These USA originated companies, for way too long, have run the currency in countries like India in the plastic form.
What Prime Minister Narendra Modi did?

In this background, Prime Minister Narendra Modi promoted the use of RuPay cards in India. RuPay card is India’s own card and payment gateway system, developed by the National Payment Corporation of India (NPCI). Realizing the loss of foreign exchange and a strategic threat in critical hours, Modi Government gave RuPay card an unprecedented push which is seen in the graph below.

Source: NPCI, JM Financial and RBI                         Approx. Figures

*Data for 2013 and 2015 is sourced from a study by JM Financial

** Data for 2018 as of July month has been computed by taking the figures of RuPay card from NPCI website (NPCI) and summing up the total outstanding card statistics from RBI (here). Subtraction of RuPay card figures from total outstanding cards statistics of RBI is the number of all other cards which includes the majority of Mastercard, Visa, and others.

Above graph suggests an unprecedented growth journey of RuPay card which has broken the back of many international players like Visa and Mastercard among others.

Prime Minister Narendra Modi has leveraged Pradhan Mantri Jan Dhan Yojana to the advantage of the RuPay card. There are about 24 crore RuPay cardholders under this scheme only.

Table: Fast-rising market share of the RuPay card

Year Number of RuPay Cards issued in India (In Mn) Number of all other cards issued in India (In Mn) Percentage share of RuPay cards of total cards issued in India
2013 2 349 0.6%
2015 140 435 24.35%
2018 500 500 50%

Note – Term cards in the above table includes both the debit and credit cards.
         Figures for the year 2018 are up to the month of July 2018 and are approximate.

The above graph and the table suggest that after 2014, RuPay card has increased its market share from tiny 0.6% in 2013 to a significant 50% in 2018. It is this market share that has troubled the business equations of the international players. It is now clear so as to why the Mastercard has lodged its protest with the US authorities as their hegemony is in clear danger.

Not only this, many other countries before India have done a similar thing like Japan (JCB card) and the European Union members. But they remained narrow in their reach or were suppressed by the virtual cartelization of US-based companies. However, India has been able to break the cartel successfully.

India has developed a Unified Payment Interface (UPI) which is being leveraged to integrate many payment systems through a common channel. BHIM app (more than 30 Mn downloads), launched by Prime Minister Narendra Modi, is an example that shows how quickly India has been able to adopt a seamless payment system. It is interesting to note that as per a report, 30 countries have approached the Government of India to acquire the technology behind the BHIM App.

Flawed Reason of Protests by Mastercard

As reported by the Reuters, Mastercard in its note to the US government has essentially said the following:

  • Prime Minister Narendra Modi has linked the RuPay card to his nationalistic policies, due to which it has been rising so fast.

Why such reasoning is flawed – In the world order, every nation has the right to protect its sovereignty and support its local businesses. India is not alone in having its own card. Japan, an ally of USA, also has a similar system of JCB card. Even China also has its China Union Pay System. The only difference is that India and China payment systems have been more successful.

  • National Payment Corporation of India (NPCI) is acting as a “quasi-regulator and a competing payment network” which benefits the RuPay card.

Why such reasoning is flawed – The conflict of interest for NPCI can arise when it imposes the ‘discriminating restriction’ on the other players like Mastercard and Visa in the market. Mastercard would have raised those specific restrictions in its note if there were any. Moreover, the success of RuPay card lies in its attractive fees and charges on the transactions. In a market economy, all the companies including the ones run by the government have all the rights to go for incentivization on usage.

Conclusion

To sum up, companies like Mastercard, Visa will now have to compete with the RuPay card in the spirit of market principles, especially when they come from a nation which has held high the flag of capitalism in the world. This foul-cry by the Mastercard again gave us an example of how the visionary policies of Prime Minister Narendra Modi are making the local Indian brands take on the global hegemonic businesses.