How is Paytm different from PayPal

India's payments in the fast lane

In the billion-dollar Asian kingdom, digitized payment services are threatening the foreign-controlled credit card companies. The Modi government is taking sides in favor of local suppliers.

India's so-called demonetization has not achieved some goals at all and has also caused quite a mess. When Prime Minister Narendra Modi announced almost two years ago that the 500 and 1000 rupee notes would no longer be accepted as means of payment with immediate effect, panic broke out in some places. Desperate people who wanted to exchange their suddenly worthless notes for new ones were trampled in front of bank branches. The night-and-day monetary policy action, in which 86% of the currency in circulation was confiscated, paralyzed the economy for weeks. Whether it represents a necessary and, above all, useful step in the fight against black money, corruption and counterfeiting remains highly controversial.

Away from cash

However, even harsh critics of Modi's mega-experiment have to admit that the monetary push-back has achieved one thing: In a country where 70% of transactions are still made with cash, payment traffic is moving rapidly towards a digital trail. Be it at petrol stations, at the ticket counter or when ordering on the Internet: App-based payment systems developed in India such as Paytm, which process transactions via smartphones, are experiencing an exemplary boom. The money is transferred from the customer's bank account to the relevant retailer in real time.

Providers of such e-wallets are meanwhile to the established debit and credit card companies. The driving force behind this development was Indian banks, which launched a standardized payment platform, the so-called Unified Payment Interface, in 2016. Since the launch of this platform, in which more than 100 banks participate, app-based payment systems have captured a market share of around 50% out of nowhere, so to speak.

Dispute over data transfer

The international credit card companies are also coming under pressure from the central bank, the Reserve Bank of India (RBI). Since mid-October, Visa, Mastercard and American Express have been required to manage payment data from Indian customers no longer offshore, but in Indian IT centers. Paypal and Amazon, mainly American-domiciled corporations, fall under the same regime.

The U.S.-India Strategic Partnership Forum, which, among other things, represents Mastercard, had lobbied against it in vain. The companies involved consider a purely Indian solution to be too costly, as the fraud prevention systems, for example, are distributed all over the world.

What the RBI hopes for from local data storage is only partially clear. It just referred to the need to be able to access the payment information at all times. Obviously, the authorities are striving to better monitor payment flows. Insiders also speculate that the government wants to prevent US corporations from sucking off commercially valuable data undisturbed in one of the world's fastest growing Internet markets.

The RBI has rejected the request for an extension of the deadline. Even for a compromise proposal to store only part of the data locally, the supervisory authority evidently showed little interest in music. Not surprisingly, the Indian fintech companies applaud the new regulation. Since they are already storing their data - in contrast to the foreign credit card companies - exclusively on Indian servers, they are hoping for a competitive advantage.

The dispute is likely to put a further strain on the already strained economic relations between America and India. The US Senators John Cornyn (Rep.) And Mark Warner (Dem.) Wrote to Indian Prime Minister Narendra Modi with threatening undertones that free, transnational data traffic was in India's interest. They alluded to IT service providers such as Tata Consulting Services and Wipro, who process data in India for American customers. Without data transfer over thousands of kilometers, the lights soon went out in some offices in Bangalore or Hyderabad.

Modi, who vacillates between nationalist rhetoric and the sound of shawmies towards international investors, recently openly called on the population to consider domestic payment services, otherwise foreign credit card companies would benefit. However, it is becoming apparent that America's internet heavyweights such as Google or Whatsapp will not allow the Indian top dogs to overtake them without a fight. You are in the process of launching your own fully digitized payment methods in Asia's third-largest economy after China and Japan.