Visa, RuPay to gain from Mastercard's loss

The RBI has restricted Mastercard Asia/Pacific from on-boarding new customers across all its card products (debit, credit and prepaid) from July 22, which could be a win-win situation for Visa and RuPay.

"The Mastercard episode was caught by surprise by everyone among the Credit Card as well as Debit Card issuers. Traditionally, Master and Visa constitute the major chunk of portfolio in the kitty of every issuer. While every issuer is working on their strategy to overcome the crisis, the great learning from this episode is to create an ecosystem for open architecture for issuance of plastic card. The cards must be scheme agnostic and this approach reduce the dependency on one scheme", an industry expert, who doesn't wish to be quoted, told Bizz Buzz.

The RBI had earlier restricted both American Express Bank (Amex) and Diners Club International (Discover Financial Services). This leaves only Visa and homegrown NPCI's RuPay as payment providers under no restrictions currently.

"We don't know if Visa has fulfilled all requirements of data localization as envisaged in the Storage of payment System Data. In the near term, we don't foresee any material impact on card issuers (especially credit card issuers), but there could be a medium-term impact if this situation persists," says a study prepared jointly by NilanjanKarfa, Amit Nanavati and Tanuja Kyal of Nomura.

Among credit card issuers including co-brand partners, RBL Bank, Yes Bank and Bajaj Finserv are the most impacted, in Nomura's view, as their entire card schemes are allied with Mastercard. HDFC Bank has 60 per cent of its card schemes tied to Mastercard, Amex and Diners, while for Axis and ICICI, this is about 35-36 per cent.

That said, we don't know the individual card schemes' contribution to overall profitability of the issuers to assess the potential impact, it said.

HDFC Bank is already restricted from issuing new cards, and hence is not incrementally impacted. On the other hand, Kotak's card portfolio is entirely allied to Visa and hence won't face any issues. Managements of both Axis and ICICI Bank have in the recent past talked about their co-branded cards with Flipkart and Amazon, respectively, to be the fastest-growing card schemes.

These card schemes are 14 per cent and 15 per cent of outstanding cards for Axis and ICICI, respectively. While Amazon ICICI card is allied to Visa, The Flipkart Axis card is allied to Mastercard, and hence is a potential medium-term risk, should the current status-quo continue. The banking system reported net additions of 2,11,000 new credit cards in April (47 per cent MoM decline).

This has taken the total credit card base to 6.23 crore (8.5 per cent YoY growth) from a 7.5 per cent YoY growth in March. Among major players, ICICIBC reported strong (18 per cent) YoY growth, followed by IIB (15.2 per cent), RBK (14.4 per cent), and SBICARD (13.6 per cent) in April. ICICIBC and SBICARD were the largest credit card acquirers, adding nearly 2,48,000 new cards, says a report by Motilal Oswal.