MasterCard Vs RuPay: Unfair nationalism or protectionism?

Last Updated at: Nov 12, 2020
The National Payments Corp. of India (NPCI), which operates the Unified Payments Interface (UPI), plans to add near-field communication (NFC) capabilities to its payments infrastructure. The NFC capability will allow UPI to take on rival private payments networks, such as Visa and Mastercard. Enabling NFC on UPI will also help it compete with NPCI-operated RuPay, which offers similar services.


We’ve all been hearing about how the MasterCard recently slapped charges in the United States, against the Indian government for using nationalism as an unfair tool to weed out competition from the international payment player Mastercard and secretly promote India’s indigenous domestic payment network RuPay.

Before we understand the nuances of the international dispute, let us look at a few basics on how the payment networks work and what they do to contribute to the economy. Have you ever noticed the MasterCard or Visa tag printed on the cards issued by your own bank? What this means is not that your money is guaranteed by MasterCard or Visa or any other company (which is solely the responsibility of your bank) but they act as the secure interface between the banks and merchants, while you use your card anywhere. The basic reason for their extensive use lies in the value they provide by securing electronic payments with reliability and technology. It offers security against frauds for protection of both consumers and merchants.

So how does Mastercard make money
While paying for items online, we are usually charged the retail price which is often lower than store prices and we pay using our credit/debit cards – the exact amount, without any extra levy. Then how does Mastercard earn revenue? Since Mastercard is the network that processes the transaction between banks and retailers, they levy a pre-determined charge on the transaction.

So every time we swipe our cards, a small percentage goes to the payment mechanism via our banks. Since these giants cash in on the volume of transactions, the greater the value and numbers, the more money they generate through service charges/international payments etc. Thus, the main idea is to partner with as many banking companies as possible in different countries and add to their international revenue stream.

RuPay’s threat to MasterCard
RuPay as a domestic payments system was launched in 2012 by the National Payments Corporation of India, as an exclusively domestic payment system, named so as a linguistic blend of Ru from Rupee and Pay from Payments and the logo inspired by our tricolour flag. Other than strengthening India’s presence on the payments technology front, one of its other aims was to counter the long established dominance of international giants like MasterCard and Visa, since the transaction fee earned by them on transactions between Indian merchants and/or Indian consumers would go abroad as their earnings.

Why MasterCard has an issue with it?
Since the Prime Minister in a statement publicly announced that using cards with RuPay mechanism would be like serving the country, since the transaction levy stays in India and would help increase government funds that could be used for public good such as spending for infrastructure, hospitals, schools etc.

This came as a huge jolt to MasterCard which is likely to witness a fall in its dominance in India, one of the fastest growing economies with a high demographic dividend of young people using online/card based payment systems. Since the transaction levy charged by RuPay was lower than what was initially charged by MasterCard, it was widely advertised to banks as being less expensive. However, the rates were later slashed by MasterCard and other companies.

NPCI’s shareholding and what this could ensue for Mastercard
Since NPCI’s shareholders are public banks, private banks, state banks, regional rural banks and some foreign banks and RuPay was promoted during the financial inclusion plan, where all the beneficiaries opening accounts for the first time were issued ‘RuPay’ cards instead of cards secured with MasterCard, MasterCard is alleging “market access issues”.

This ensues difficulty in fostering new partnerships with banks and other financial institutions, targeting new customers in smaller cities and losing out on services charges, inter-change fees coupled with the emotional appeal of nationalism. It is also noteworthy, that the emergence of online wallets such as PayTM and the government owned BHIM have also added pressure on international payment giants like MasterCard.

In a similar vein, a few months ago, Trump had also raised an issue on how India exported Royal Enfield is not subject to the same duties as levied by India on the import of US manufactured Harley Davidson, to maintain the competitiveness of its own luxury motorcycle and protect it from foreign competition.

A lawyer with 14 years' experience, Vikram has worked with several well-known corporate law firms before joining Vakilsearch.