But it does!

According to the #ZeroMDR regulation in force since the start of 2020, Merchants incur zero fees for accepting RuPay Debit Card payments. On the other hand, since this reg is not applicable on Visa and MasterCard Debit Card and Credit Card payments, Merchants do incur fees for accepting Visa and MasterCard.

So, Merchants do have a strong incentive to accept RuPay against Visa / MasterCard.

Since the #ZeroMDR regulation is enforced by the government, it could be argued that India is indeed heavily promoting RuPay as the preferred card network for all merchants in India.

But is it working? No. At least according to MoneyControl article entitled Finance Ministry move on merchant discount rates killing RuPay cards: Study:

IIT Bombay study says since there is nil merchant discount rates on the card, banks may not be able to make any money on RuPay card transactions. As a result, Visa and Mastercard are gaining. The study, Merchant transactions through debit cards – costs and prices, conducted by Professor Ashish Das of the Mathematics department, has found less RuPay debit cards being issued by banks from September 2019 to August 2020. Only 65 lakh debit cards have been issued in the period, compared to 4.6 crore cards in the corresponding period of the previous year, the study found. More Jan Dhan accounts, less RuPay cards. Das argues that this happened when 3.6 crore new Jan Dhan accounts were opened this year, compared to 4.2 crore in the previous year.

Will it work? Probably not.

The way card networks operate, Merchants need a Merchant Account to accept RuPay. While RuPay is owned by National Payments Council of India (NPCI), Merchant Accounts for RuPay are issued by Acquirer Banks, not NPCI.

Now, coming back to the MDR fees I mentioned above? That’s levied by Acquirer Banks on Merchants. #ZeroMDR on RuPay means Acquirer Banks don’t make money off of RuPay. Ergo, they have no incentive to promote RuPay. OTOH, #ZeroMDR is not applicable for Visa and MasterCard, so Acquirer Banks make money by issuing Merchant Accounts for Visa and MasterCard and therefore have an incentive to promote RuPay’s competing card networks.

So, even though Merchants would love to accept RuPay and NPCI would love to propagate RuPay, RuPay won’t be a hit.

What seemed like a great way to promote RuPay at the start may have an unintended consequence in the end. This is without even considering many other advantages of Visa and MasterCard over RuPay such as rewards, cashback, brand image, and so on.

While on the subject, in most other businesses, there’s a single buyer and single seller. Card network is not like that. It’s one of the oldest examples of the so-called “4-corner marketplace” where there are many players. What appears logical in other industries doesn’t always work in card network.

Created over 50 years ago, Card Networks enjoy the so-called “Network Effect”, which explains their longevity and popularity. While a full treatment of this economic principle is beyond the scope of this answer, suffice to say that Network Effect in Card Network business makes it very difficult to displace incumbents.

But not impossible.

Visa and MasterCard are the incumbents in the card network business virtually everywhere in the world including India. RuPay is the new kid on the block. Zero MDR alone won’t be enough for RuPay disrupt Visa and MasterCard. (In fact, as the aforementioned MoneyControl article argues, ZeroMDR may disrupt RuPay rather than Visa and MasterCard.)

What will?

Emulate China Union Pay. The Chinese card network offers both debit and credit cards. While CUP started locally within China, it quickly took the battle to Visa / MasterCard’s backyard by aggressively expanding to North America and Europe. It’s the only local card network anywhere in the world to have made a dent on Visa / MasterCard. Mimicking anything from China might sound politically incorrect amidst the current border tensions but, if 95% of POS terminals are reportedly still imported from China, so what’s wrong in copying Chinese strategy, right?

For RuPay to make a difference, as I highlighted four years ago in my post entitled How To Contain Card Interchange Charges, it needs to offer both debit and credit cards and operate internationally. In other words, NPCI must become a full-service card network with a global footprint.

The recently founded NPCI subsidiary called NPCI International Payments Limited (NIPL) is the first step in that direction.

I hope it’s not the last.