Delhi, Jul 14: If you look at a credit card, you will notice at least two logos on it. The first is the logo of the issuing bank. The second is the logo of the payment processing firm. The two most used payment systems in the world are Mastercard and Visa.
What do payment systems do?
When you present your card for payment, someone needs to check at least the following:
- Is the card valid?
- Does the person have enough money in their bank/ credit limit to make this payment?
- Is the PIN entered by them correct?
This information then reaches the merchant and the payment is approved.
Mastercard and Visa make this verification possible anywhere in the world. The information is stored on their servers. They get a share of all transactions in return for offering this service.
What is data localisation?
In April 2018, the Reserve Bank of India (Reserve Bank of India controls the working of all other banks in India and ensures that they all follow rules) asked all companies working in India to store the financial (related to money) data of Indians on servers that are physically located in India. All banks and companies were given six months to follow this rule.
Australia, Europe, and other countries across the world have this requirement for all or most of the data of their citizens. India asked for only financial data to be stored in India. This practice of storing data in a server located in the same country is called data localisation.
In a report that we carried in December 2018, Mastercard had assured the Government of India that it will store all financial data of Indians on servers located in India.
However, according to the RBI statement:
“Notwithstanding lapse of considerable time and adequate opportunities being given, the entity has been found to be non-compliant with the directions on Storage of Payment System Data“
This means that in spite of this assurance, Mastercard did not, and still does not, store Indian data on Indian servers.
What changes on July 22nd?
From July 22nd, Mastercard will not be able to issue any new credit cards in India. Their existing cards can be used, so their customers will not face any problems.
Who else is impacted?
American Express and Diners have already been restricted from issuing new cards as of May 1st this year. They have also not stored data on Indian servers.