Why Does Visa Complain to the U.S. Government About India’s Preference for RuPay?

Visa, one of the world's largest payment processing companies, has formally complained to the U.S. government about India's preferential treatment towards RuPay. This move comes amid growing concerns over the lack of a 'level playing field' in a critical market.

Complaints from Visa and Mastercard

Both Visa and Mastercard have voiced their discontent at the preferential treatments being accorded to RuPay through various Indian government authorities and forums. These organizations, which have maintained a duopoly in the payment processing space for over half a century, are now faced with competition from RuPay, a domestic payment system.

Historical Context: The Duopoly of Visa and Mastercard

Historically, Visa and Mastercard had a near-monopoly in the Indian payment processing sector. They controlled pricing and settled transactions for a network of banks and merchants. The infrastructure these companies established has enabled global payments and supported the growth of digital transactions worldwide, largely due to their substantial investments.

An Evolving Payment Landscape in India

With the rise of RuPay, the payment landscape in India has transformed significantly. Prior to RuPay's launch, Visa and Mastercard services were primarily available to around 30-40 banks in India. However, since RuPay’s introduction, over 1200 banks now issue RuPay cards. What was once a service reserved for the upper-middle class diaspora is now ubiquitous in Indian households. This has led to financial inclusion and a reduced exclusivity in the payment sector.

The Economic Impact on Visa and Mastercard

The rise of RuPay has led to a decline in business for Visa and Mastercard. Their growth stagnated, resulting in reduced margins and increased costs. The disparities have led to complaints about the unfair advantages RuPay enjoys from the Indian government, hence the formal complaint to the U.S. government about potential unfair trade practices.

Potential Solutions and Critiques

One potential solution suggested by observers is for Visa and Mastercard to lower their commission rates, perhaps from 2% to 0.1%, to compete with RuPay. However, many view this as a contradiction, as these companies charge significant fees to facilitate transactions, and reducing them could undermine their business model. For instance, using Visa or Mastercard often entails paying additional surcharges for utility bills and train tickets.

Conclusion

The strategy used by Visa and Mastercard is to leverage the support of the U.S. government to impose sanctions on India for what they perceive as unfair trade practices, rather than directly addressing the issue within India. However, critics argue that the Indian banking system and government have the right to promote their own technology and services, as long as they adhere to international norms and trade agreements.

As the global digital payment market continues to evolve, the debate over fairness and the right to promote domestic technologies will likely persist, affecting the strategies of companies like Visa and Mastercard.