On 23 April 2021, the Reserve Bank of India had barred American Express and Diners Club International Limited from onboarding new customers to their platform. The ban is expected to come into effect from May 1. Let’s look at why both the payment system operators American Express and Diners Club International Limited were banned by RBI from adding new customers.
About the RBI Ban
The Reserve Bank of India had initiated a ban for the payment system operators from onboarding new customers into their network as they were not able to follow the norms with the data storage put forth by the RBI.
The Reserve Bank of India in a statement said that both the entities have been found to be non-compliant in respect to the directions on storage of data of the payment systems. The RBI has added that the action towards both the entities was taken based on the powers which are under Section 17 of the PSS Act.
American Express Banking Corp and Diners Club International Ltd are payment system operators in the country who has the authorization to operate card networks in India under PSS Act (Payment and Settlement Systems Act), 2007.
American Express Banking Corp
American Express Banking Corp is a multinational company that focuses on financial services. It is located in New York, the United States. The company was founded in the year 1850. American Express is considered to be the 23rd most valuable brand in the world according to the Forbes 2017 list.
Some of the products offered by the company are Charge Cards, Traveler’s cheque, Credit Cards, corporate banking, etc. In India according to a report by Financial Express, American Express has a market share of around 2.53 % of the total market with around 15.6 lakh credit cards outstanding.
Diners Club International Ltd
Diners Club International is also known as DCI is a charge card company. It is a finance-based company that has its headquarters in the United States. The company was founded in the year 1950. Diner Club International was the first payment card company in the world.
The company is owned by Discover Financial Services. Some of the products of Diner Club International are charge cards and credit cards. In India, Diners Club International distributes its cards exclusively through HDFC Bank and the exact number of active users is unknown.
Why did RBI restricted American Express, Diners Club from adding more customers
In the year 2018, in a notification, the Reserve Bank of India had noticed that all the payment system providers did not stored the data of the payments in the country. The notification said that there was a significant growth witnessed by India in the payment ecosystem and such systems depend completely on technology.
The notification added that such an ecosystem has a necessity for a continuous measure of safety and security that were best in class.
The Reserve Bank of India had then directed all the system providers to ensure that the entire data which are related to payment systems should be stored in a system that is only in India.
The data which are stored should include the full end-to-end transaction details, information, carried, collected, and processed as part of the message or payment instruction. This was mentioned by RBI in its notification.
If there is any foreign transaction, those data can be stored in the foreign country if it is required. The compliances with the new rules were supposed to be followed by the system providers within 6 months and they had to report the same to the Reserve Bank of India.
In addition to this, they were also required to submit a report which should be approved by the board a System Audit Report (SAR). It should be conducted by the CERT-In empanelled auditor within the time duration that is specified.
The ban of American Express Banking Corp and Diners Club International Ltd by RBI is because they have failed to follow the statement given by RBI in regards to storing the data which was issued two years ago.
What does American Express do in India?
In India, American Express offers a full range of travel, financial and network service products.
What type of credit card is Diners Club?
Diners Club is an International Credit Card.
Who owns RBI?
RBI has been fully owned by the Government of India since its nationalisation in 1949.
The ban on both the entities would not affect the existing customers. The Reserve Bank of India had clarified in a statement that the ban will have no impact on the customers of both the companies.