Nationalism Payment Systems
India's domestic payment system was set up to promote a more cost-effective payment network within the country.
NATIONALISM PAYMENT SYSTEM IN INDIA CASE STUDY
- The domestic payment system in India was launched in 2012 by the National Payments Corporation of India (NPCI). The idea was conceived by the Reserve Bank of India (RBI) in a document titled "Payment Systems in India — Vision 2009-12." This institution also helped to set up the NPCI, to monitor the launch of domestic payment cards called RuPay.
- The drivers behind the launch of domestic payment cards in India, according to the RBI, include the fact that banks in India bear the high costs of affiliating with international card associations in the absence of a domestic pacesetter. The institution cited that in 2010 banks in the country paid over $100 million to global network processors.
- Also, domestic transactions which constitute around 90% of the total transactions in the country go through gateways located outside the country.
- Lastly, since many Indians lack access to the existing banking system, the RBI planned to use RuPay cards as a medium to include them in the financial system.
- The opportunities for this system include India's population of over 1.1 billion people, which serve as a large user and merchant base for a successful domestic market. Also, with the support of the RBI, Indian banks would quickly adopt the use of the domestic payment system.
- The reduction in transaction settlement costs charged to merchants would also facilitate acceptance and use by merchants and retail stores within the country.
- The domestic system would also aid the Indian government's "employment generation schemes such as the National Rural Employment Guarantee Act by offering cards to people receiving benefits from the government." India's Unique Identification Number (UID) program would serve as a platform to promote RuPay cards to unbanked customers.
RESPONSE BY MASTERCARD AND VISA TO INDIA'S NATIONALISM PAYMENT SYSTEM
- In response to the development of a domestic payment system in India, Visa slashed the regular costs incurred by issuers, as much as 95% in some cases. While the country's Merchant Discount Rate (MDR) prevents such discounts from being passed on to merchants, significant changes are expected to occur in the market due to strong competition.
- MasterCard released an official protest against India's nationalism payment system, citing that the nation's Prime Minister Narendra Modi was using nationalism as an unfair tool to weed out the competition from international payment systems. The company described Modi's intentions as commendable, but stated that they represent a "series of protectionist measures that harm global companies."
- While the RuPay system is experiencing stiff competition from existing international players such as MasterCard and Visa, it currently has 700 issuers that make use of its settlement and clearing system.
- Since its introduction, India's total point-of-sale debit transactions increased from around 31 million monthly transactions to 350 million. RuPay has become the second most dominant card network in the region with an outlook of being the most used card system in the next two years.
- To keep RuPay afloat and thriving within the global payment network market, NPCI is collaborating with several other established payment card brands such as JCB International and Discover.
- By doing the same, it is extending its services to a larger user base, moving beyond India to other parts of the world.
- Government backing and instigating nationalism has driven the adoption of the system above that of established brands such as MasterCard and Visa. As of 2018, RuPay constituted 56% of the market.
- Lastly, NCPI's shareholders are mostly public, private, state, and regional rural banks, making its adoption in the financial services industry quite seamless. Currently, it is accepted at 97% of POS terminals and almost all ATMs in India.
- JCB International's agenda to reach a worldwide market encouraged its partnership with NPCI's RuPay, giving it access to the country's population of over 1.1 million people.
- The company disclosed that India was the number one country in its global quest, citing its huge potential and market. The partnership was in two phases, the first being the enablement of merchants and ATMs in the country to accept and use JCB credit cards.
- In the second phase of the partnership, Indian travelers would be allowed to use JCB cards in foreign countries where it is accepted. For the same, they provided POS discounts when the card was used in certain countries.
- Discover has affiliations to several other domestic payment systems, including UnionPay in China and BC Card in Korea. Subsequently, the global brand extended its reach to India by establishing a partnership with RuPay that would lead to "the acceptance of Discover cards and Diners Club International (DCI) cards at NPCI ATMs and point-of-sale terminals for purchases in India."
- The partnership executed in three phases included acceptance at ATM locations, followed by acceptance at POS locations. The final phase was to include RuPay Global Cards as part of the Discovery payment network for use outside of India.
- Discover thus received an increased number of transactions at ATM and POS locations due to the Indian market. On the other end, RuPay Global cardholders would have access to the benefits of the Discovery payment network in the countries where it is accepted.
- The company thrives by working on technological offerings such as providing "D-PAS, Discover’s EMV technology, to offer chip-based cards to RuPay cardmembers."
- Nationalism payment schemes began when electronic payments first launched across most parts of the globe, including Europe and Asia, with ATM networks being the main drivers of card usage.
- Going as far back as 1960 with Japan's domestic payment card JCB, Korea's BC Card launched in 1982, to the establishment of Dankort, Denmark's national debit card scheme in 1984, and Belgium's Bancontact developed in 1989, domestic payment schemes have been in existence for some time.
- With the expansion to North America and the use of cards beyond home markets, global markets began to offer credit products to gain international acceptance.
- Due to internationalization, domestic schemes slowed down and eventually faded away. However, they have begun to return to the market in recent years.
- In 2001, China kicked off its payment card industry, with UnionPay being the only player used for domestic payment transactions in the country.
- In 2008, the Malaysian government in support of local competition launched MyClear. Brazil followed suit in 2011 with the adoption of its first 100% Brazilian payment brand, Elo. Elo was formed by the three largest banks in Brazil, including Banco de Brasil, Bradesco, and CAIXA.
- India was the next country to respond with the development of RuPay in 2012, in response to costs associated with international payment systems, and to aid local regulations that promote preference of digital payments over cash.
- Russia followed suit with the establishment of a national payment system called Mir in 2014. The first Mir cards were issued in 2015 as part of a pilot project.
- Turkey later jumped on this trend with the development of TROY in 2017 to include digital transformation to the payment system in Turkey.
- As of 2019, Sri Lanka announced that it would be launching its national payment scheme. The cards will not be affiliated with MasterCard or Visa. Instead, it will be operated by LankaClear (LCPL) and JCB International.
- "In line with State Bank of Pakistan Vision 2020 to enhance and promote financial inclusion, 1LINK (Guarantee) Limited launched Pakistan’s first domestic payment Scheme PayPak aimed at providing efficient, cost-effective, robust and ubiquitous payments solutions."
GLOBAL FLOWS AND GROWTH
- National payment schemes are leading to global flows and partnerships in India and beyond. For example, Japan's JCB International partnered with India's NPCI and domestic banks to produce the RuPay JCB Global Card. The card aims to serve the need of Indian outbound travelers as well as the domestic populace. It would serve both point-of-sale (POS) and ATM transactions.
- The launch campaign advertised a 15%`cashback on POS transactions outside India and 30% in Thailand, Singapore, and UAE. Cardholders would also have exclusive access to JCB International benefits such as member lounges globally.
- NPCI also developed a strategic alliance with Discovery Financial Services (DFS), resulting in "acceptance of Discover cards and Diners Club International (DCI) cards at NPCI ATMs and point-of-sale terminals for purchases in India. The alliance would also allow RuPay cardholders to utilize the Discover, Diners Club International, and PULSE networks for international purchases and cash access outside of India."
- Based on the terms of the agreement, the NPCI's ATM and POS network in India is expected to see increased transaction volume, as well as on the Discover, Diners Club International, and PULSE networks. They are also looking to "implement D-PAS, Discover’s EMV technology, to offer chip-based cards to RuPay card members."
- Elsewhere, Russia's Mir domestic payment system has expanded to eight other countries. JCB established relationships in other countries, including Austria, Brazil, Germany, Laos, and Russia. JCB stated that the system's strategy is to establish its use all over the world and not only in Japan.
- China's UnionPay is now accepted in over 110 countries, with more than 2.3 billion cards issued globally.