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RBI bars Mastercard from issuing new cards

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not much

Mains level : Need for data localization

The Reserve Bank of India (RBI) has banned Mastercard from issuing new debit and credit cards to customers in India.

Why such a ban?

  • According to the RBI, the US card issuer has failed to comply with the local data storage rules announced by the central bank in 2018.

What is the RBI’s data localization policy?

  • In 2018, the RBI had issued a circular ordering card companies such as Visa, Mastercard, and American Express to store all Indian customer data locally.
  • This was aimed for the regulator to have “unfettered supervisory access”.

Why such a policy by RBI?

  • The reason offered by the RBI was that local storage of consumer data is necessary to protect the privacy of Indian users and also to address national security concerns.

Issues with the policy

  • Privacy: Customer privacy and national security are genuine concerns that need to be taken seriously.
  • Protectionism: However, data localization rules may sound too stringent and they could simply be used by governments as tools of economic protectionism.
  • Security: For instance, it may not be strictly necessary for data to be stored locally to remain protected.
  • Formal international laws to govern the storage of digital information across borders may be sufficient to deal with these concerns.
  • Discrimination: Governments, however, may still mandate data localization in order to favour local companies over foreign ones.

Implications of the move

  • Indian banks that are currently enrolled in the Mastercard network are expected to make alternative arrangements with other card companies.
  • The RBI’s data localization policy, as it burdens foreign card companies, may end up favouring domestic card issuers like RuPay, which in turn can lead to reduced competition.
  • Mastercard owns about one-third of the market share in India, and the RBI’s ban is likely to significantly benefit its competitors.
  • This could mean higher costs and lower quality services for customers.

Conclusion

  • In today’s digital economy data have turned out to be a valuable commodity, which companies, as well as governments, have tried to gain control over.
  • With no clear rules on who owns customer data and to what extent, conflicts over data ownership are likely to continue for some time.
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