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According to RBI directives, from July 22, new issuance of such cards will stop as Mastercard did not comply with 2018 rules requiring foreign card networks to store Indian payments data locally. Image Credit: Supplied

Delhi: India's decision to ban Mastercard for non-compliance with data storage rules has left country's financial sector with uncertainties. The move is expected to disrupt banks' card offerings and hit revenues, payments and banking industry executives told Reuters.

The recent central bank’s order followed similar action in April against American Express, but Mastercard is a much bigger player in the Indian market, where many lenders offer cards using the US firm's payments network.

According to RBI directives, from July 22, new issuance of such cards will stop as Mastercard did not comply with 2018 rules requiring foreign card networks to store Indian payments data locally for "unfettered supervisory access".

Though existing customers will not be hit, business impact will be significant as banks need to sign new commercial deals with rival networks such as Visa, a process that can take months and involve weeks of back-end technology integration, five payment and banking executives said.

One banking executive said the switch to Visa could take as long as five months. Moreover, with American Express and Mastercard prohibited, Visa gets an unprecedented advantage in negotiations in a credit card market it already dominates.

"It will mean temporary disruption for banks, a lot of hectic negotiations and loss of business in the short term," said one of the senior Indian banker.

A major setback

The RBI's 2018 rules were adopted despite aggressive lobbying by US firms seeking to dilute them. Mastercard has said it is "disappointed" with the decision and will work to resolve the concerns.

"This is consistent with our considerable and continued investments in our customers and partners in India to advance the governments Digital India vision," Mastercard said in a statement on Thursday.

The decision is a major setback for Mastercard, which counts India as a key market. In 2019, Mastercard said it was "bullish on India", announcing $1 billion in investment over the next five years, after investing $1 billion from 2014 to 2019.

Mastercard also has research and technology centres in India, where its workforce of 4,000 is the second largest after the US, having grown from 29 in 2013.