Sorry, no Mastercard? Rules for digital commerce needs
Mastercard Inc. has been ordered not to issue new cards in India. It’s a move that underscores the urgent need for a U.S.-led digital trade pact to set global standards for what sovereign states can and can’t do to businesses that obtain and process data at the international scale.
India’s central bank has shut down the U.S. payments network for allegedly failing to comply with its controversial local data storage rules introduced three years ago. In April, the monetary authority imposed similar restrictions on Diners Club cards from American Express Co. and Discover Financial Services. Existing customers will do well in all three cases, but stiff penalties will always reduce competition in the market.
RBL Bank Ltd., whose shares fell on Thursday after the regulator’s announcement, said it would take up to 10 weeks to switch to Visa Inc., which could affect its monthly card issuance target in the interval. Mastercard has a 33% share in India, compared to 45% for Visa. Other Indian banks and finance companies will also be affected, according to Nomura Research.
Could this dislocation have been avoided? Globally, e-commerce, content and payments companies are in the crosshairs of regulatory action. While governments advance many reasons for insisting on local storage – from verifying money laundering to ensuring national security – the burden of compliance falls disproportionately on international companies. Competitors who serve only one market find it easy to meet the requirements. This makes it a problem of access to trade. To fill this and several other gaps in cross-border data exchange, President Joe Biden’s team is working on digital trade deal proposals with Asia-Pacific economies, Bloomberg News reported this week.
Decades of globalization have lowered tariffs and harmonized customs procedures in trade in goods. And while selling services like banking and insurance across borders is always complicated, regional free trade agreements at least try to reduce friction. When it comes to data capitalism, however, populous nation states are increasingly aware of the value of the raw material at their disposal – and loath to share it with others.
Localization requirements are some of the most glaring bottlenecks. From Russia to China to India and Indonesia, many governments insist on national data storage. Some go further. China used a 2017 cybersecurity law to crack down on Didi Global Inc. just days after the popular rideshare app sold shares in the United States. From September, things will get even tougher. Under a new data security law, Chinese companies will need government permission to share any information about their operations on the mainland with law enforcement overseas.
India offers a more welcoming environment for now, but it too is considering legislation for the protection of personal data and the handling of non-personal information. Compliance costs for businesses will be determined by guidelines formulated under these new laws. As Amazon.com Inc. and Walmart Inc. find out, staying on the safe side of idiosyncratic Indian rules can be a costly business.
Facebook Inc.’s WhatsApp messaging service, which wanted a share of the burgeoning Indian cardless payments market, was limited to an excessively long beta trial. Even then, the highlight of the show was the localization of the data. WhatsApp said it met all the requirements, but by the time the National Payments Corporation of India and the central bank were satisfied, the service had been delayed for almost three years.
The Reserve Bank of India wants data on Indian card payments to reside only on local servers – with no copies kept elsewhere. As more countries impose such demands on data sovereignty, the economic efficiency of centralized storage and processing will disappear. The data center market is heavily concentrated in five markets: Northern Virginia, Singapore, London, Sydney and Silicon Valley, according to a 2021 Cushman & Wakefield Plc study of projects in active development. Location decisions are made on the basis of a reliable 24/7 power supply, legal security, fiber optic connectivity and cloud availability from the three main suppliers: Amazon, Microsoft Corp . and Alphabet Inc.’s Google But localization requirements get in the way. Mastercard even announced a $ 350 million investment in a data center in Pune, Maharashtra – its first outside the United States – to comply with Indian regulations. Yet the RBI clearly was not impressed.
The data is unlike any other commodity. Everything else, from petroleum to computer software, derives its value from well-defined property rights protected by legal systems. But as Columbia Law School professor Katharina Pistor argued, the tech industry simply captured data like “wild animals.” Now, if states rush into the legal limbo and unilaterally claim rights over individual data, it will lead to more chaos. What consumers around the world want is for their governments to fight for privacy and fair use by tech companies.
Given the current climate of mutual mistrust, it is doubtful whether China and the United States can reach a common agreement on access to each other’s bits and bytes. For the rest of the world, a compelling digital trade deal from the Biden administration would help set standards. This would safeguard U.S. trading interests globally and assure trading partners that letting information flow freely – under strict rules – is better than trapping it in silos. The volume and granularity of data in a fully functioning 5G network will be much higher than today. Cloud computing resources will need to be more widely distributed to manage complex machines such as self-driving cars.
Trying to slow things down with localization requirements will be counterproductive. The American president has his work cut out for him.
(Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services. He was previously a columnist for Reuters Breakingviews. He has also worked for The Straits Times, ET NOW and Bloomberg News.)
Disclaimer: The opinions expressed in this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of NDTV and NDTV assumes no responsibility in this regard.