It may be time for a thaw in a relationship. The Reserve Bank of India is keen to allow Visa and Mastercard access to the country’s popular online payment protocol, according to news portal The Morning Context. It’s like hanging the keys to the candy store in front of your child. From big malls to roadside shacks, 230 million of his QR codes are now set up to receive money. This is when there are only 7.3 million of his POS terminals that read cards in this country of 1.4 billion people.
Many emerging markets are migrating to smartphones ahead of plastic and expensive card readers. In China, the merchant scans the user’s two-dimensional barcode generated by his Alipay and WeChat Pay phone apps. Indian fintech pioneer Paytm has further eased the capital burden for SMEs. The customer scanned the shopkeeper’s QR sticker on her and showed the phone screen after the payment was completed. After Paytm introduced Soundbox, a piece of hardware that you can rent for $2 a month, sellers started receiving voice confirmations.
It has become the standard for QR code-based payments on Unified Payments Interface, an Indian protocol for fast money transfers from one bank account to another 24/7. Growing from scratch in 2016, the smartphone-based UPI (Utilities), in December he handled nearly 13 trillion rupees ($160 billion). Of this, about 10 trillion rupees were for money exchange between individuals. For the rest of his Rs 3 trillion QR code spending on merchants, the government will reward banks so that they can facilitate online transactions and formal credit is available to disadvantaged groups such as street vendors. will do so.
Opening this large and fast-growing market to major networks means that credit limits can be used without having to swipe a physical card. This could potentially be a big deal as they want to borrow for purchases instead of using their own funds. India’s National Payments Corporation, the operator of the UPI protocol, also sponsors his RuPay, a local card looking to compete with the American network. RBI recently allowed RuPay credit cards to be linked to his UPI. Why would NPCI want to give up this early advantage so soon? Simply put, this is what banks want.
RuPay has issued over 600 million cards, most of which are debit products. Visa and Mastercard control 90% of the US credit card market. It is the duopoly that makes the Indian government nervous. Today, New Delhi and Washington have a common interest in opposing Beijing. The placement may change tomorrow. India should be able to soften the blow if the U.S. tries to break out of sanctions against Russia and use payments as a foreign policy instrument.
China’s UnionPay (UnionPay) is leveraging domestic funding to expand globally, but Lupay does not have the advantage of growing in a protected financial environment. The US network, which dominates nearly all of India’s open credit card market, will not suddenly accept adverse terms. Their Washington lobbyists will pounce. Indian banks will complain too. A more concerted approach may be needed to make the rupee an internationally acceptable medium of exchange. And what could be a better incentive than UPI, a globally recognized success story?
Currently, UPI spending comes out of consumers’ savings accounts. From the user’s perspective, scanning the QR is the same as paying the company in cash. No need to go to the ATM. However, from the bank’s point of view, deposits come at a cost. Interest must be paid to account holders. And the lender has to go and earn the spread. However, as some purchases shift to credit cards, banks offering loans quickly get a lucrative asset and start praying that their customers won’t pay the full bill. , the cardholder’s bank earns four fifths. The rest is shared between the retailer’s bank, the NPCI … and the card network. Everyone makes money. As such, all debit transactions will remain free even after the end of state subsidies to popularize online payments.
This gives banks a strong incentive to stand behind Visa and Mastercard by treating NPCI’s gateway as a public good and demanding a freely available US card network similar to RuPay. If the incumbents protest too much, it may not be a bad idea to revive the currently suspended plan to license more operators. has other good things, such as the proposed partnership with PayNow in Singapore. The NPCI has also decided to allow the Indian diaspora to join his UPI using foreign phone numbers.
There is no point in being narrow-minded when it comes to payments. Everyone benefits when the pie gets bigger. When it comes to using credit cards for geopolitics, the stick can wait if juicy carrots do the same.
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Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services in Asia. He previously worked for Reuters, The Straits Times and Bloomberg News.
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