RuPay Card - A masterstroke by the Narendra Modi Government
- In Economics
- 09:44 AM, Nov 26, 2019
- Shrijeet Phadke
Fear and Finances are bywords for carrot and stick strategy in international relations, wielded by super powers. These tools are invoked by them not only to protect their own interest but to deter other nations to extract unconditional surrender. The most dominant in the international diplomacy but least debated topic in media is currency and payment system. Be it an international banking or payment gateways. Hence despite heaping a praise on Narendra Modi and his iron figure in international affairs, barring few, majority of Media publications missed the bus by not giving adequate fanfare to RuPay card and diplomacy behind it.
HISTORY AND OBJECTIVES
The word RuPay is combination of two words Rupee and Payment launched by National Payment Corporation of India (NPCI) in order to integrate payment system in India. It is Indian version of credit and debit card and similar to western cards such as Visa and Master Card, by promoting the RuPay card India has become one of the few countries in the world to have its own payment gateway. It is curious to note that the RuPay card was introduced in 2012 however, the then government of India never promoted this alternate indigenous payment system to curb the dominance of Visa and Master cards for the reasons best known to them.
In 2016, subsequent to demonetization Prime Minister started promoting a use of digital payment to crack down on the black money. However, Modi had clear vision in mind to promote alternate payment system which is indigenous in nature, in order to tame the monopoly of western payment systems. Therefore, he initiated opening of bank accounts under new Jan Dhan yojana a flagship project of Modi government to integrate as many people as possible in formal banking system in India. These accounts were offered RuPay card instead of Master or Visa Card.
India recorded debit and credit card transactions for more than ₹ 51 Billion within two years from the date of demonetization. Modi’s visionary move helped to curb the tentacles of foreign payment systems in India. RuPay card primarily intended to cater rural consumers of the country it is now entrenched in the towns and cities as well.
FEATURES AND BENEFITS
While many of the banks in India have tied up with the Visa and Master Card which are international payment services the processing fees paid by the customers is paid to these international entities. It is also relevant to note that the cost of transaction involved in Visa cards is high and on par with international payment system. Banks issuing these cards also pay separate network fee therefore overall cost of using these cards is high and drains out wealth of India to foreign countries. As against RuPay card where all transactions are processed in India itself and therefore charges for processing are lower than international charges. In fact, charges are approximately 23% lower all the gains are retained in India itself. RuPay Card offers insurance cover to card holders which is missing in case of Visa and Master Card. Furthermore, all RuPay cards offer waiver of 1% fuel surcharge.
One of the biggest reasons why RuPay captured a big chunk of the market was its flat fee. For every RuPay-based transaction, NPCI charges 60 paise for acquiring and 30 paise for issuing. So, any person using a RuPay card by Bank X pays through Bank Y’s PoS terminal, as the acquirer Bank Y will pay 60 paise to the NPCI and Bank X, the issuer, will pay 30 paise. This, when compared to Visa and MasterCard’s merchant-discount rate, is minuscule, as it is calculated as a percentage of the actual transaction amount. Hence the benefits extend to both customers and banks, in the form of low transaction fee and no network entry fee respectively.
In India domestic transactions account for 90% of total card transactions. However, in case of dominance or monopoly of the foreign payment system, even domestic transactions are routed through switch located out of India which is pernicious for the interests of India. In the days where power of data is acquiring significance day by day and everyone is vying to control data it is perceived as symbol of power. Modi therefore, have rightly given an emphasis on the RuPay card where domestic data will remain within the borders of India and subsequently data protection law of the land will be applicable to transactions.
RuPay card now captures 65% of market share and it has become India’s largest network. As of August 2018, around 560 million transactions are carried out by using RuPay card. In other words RuPay accounts for more than half of the market share in India.
Diplomacy and RuPay Card
The payment system blockage a part of secondary sanctions is one of the diplomatic moves frequently invoked by United States to genuflect its adversaries. Secondary sanctions are generally [directed] towards foreign persons. These measures threaten to cut off foreign individuals or companies from the U.S. financial system if they engage in certain conduct with a sanctioned entity, even if none of that activity touches the United States directly.
Very recently U.S based Master card had suspended its service to two Venezuelan banks. Iran and Russia also have suffered a brunt due to Secondary Sanctions. India had also been subjected to U.S sanctions when it conducted nuclear test in 1998. All the major powers in the world including European Union are thinking of developing indigenous alternate payment system to tame U.S hegemony. U.S is hounding other nations by using secondary sanctions as cudgel to make them fall in line with U.S policies. Therefore, countries like Russia have proposed to ban Master and Visa cards in their countries. Russia had gone one step ahead by proposing alternate payment system in the BRICS countries which will challenge the U.S hegemony especially among biggest developing markets in world. It is learnt that Russia-India-China will create common payment system an alternative to the US-dominated SWIFT (Society for Worldwide Interbank Financial Telecommunication) payment mechanism in a bid to smoothen trade with countries facing American sanctions.
In this backdrop Prime Minister Modi is popularizing RuPay card to reduce our dependence on international payment gateways. This move is perfectly in line with the objective of making India self-reliant in every sector.
In August 2019, the UAE became first middle-east country to launch RuPay card. Singapore and Bhutan had also launched RuPay card in their respective countries. Modi purchased 1 kg laddoos using RuPay card in the UAE. India has also launched the RuPay card in Saudi Arabia which will benefit the Hajj pilgrims visiting Saudi Arabia. It is a significant move in the view of recent increase in Indian quota by Saudi Arabia to the tune of 2 lakhs pilgrims.
It is significant to note that the since the biometric data is mandatorily collected from all the applicants of this card, India marching towards collecting and processing the data of foreign applicants (though many of them will be NRIs) in India and thereby accrual of processing fees to India.
The promotion and propagation of RuPay card by Modi government is so robust that Mastercard has lodged protest over it. In the span of 6 years, RuPay has given tough time to Master and Visa cards in India because the charges collected by these foreign cards will now reduce to marginal level and large chunk of it will be diverted to government of India. The said charges will be utilized as funds towards development of schools, hospitals roads in India.
Conclusion
The Modi government has done formidable job by way of challenging the oligopolistic Payment gateway market in India. India like China and Russia have committed to reduce the dominance of U.S. This move of Modi government paved a way for swadeshi ideology in financial market sending a clear message to other countries that India will be a become a force to be reckon with in global diplomacy.
Shrijeet Phadke
References
https://www.gatewayhouse.in/brics-alternate-financial-framework/
http://www.ijsrp.org/research-paper-0219/ijsrp-p8667.pdf
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