Win-win situation for Mastercard, Visa
new york — India’s war on cash has at least two likely victors: Visa and Mastercard.
The world’s largest payment networks will see a surge in transactions and cardholders after the Indian government’s decision this month to remove high-denomination bills from circulation, according to analysts who cover the companies. The two networks have been pushing for this kind of change in India, where a McKinsey & Co. study found that more than 90 per cent of transactions are still conducted in cash.
“Visa and Mastercard both benefit as paper currency or cheques turn toward electronics,” said Moshe Orenbuch, an analyst at Credit Suisse Group who has a buy recommendation on both stocks. “When we think about where they are investing, they look toward areas where there is the potential to accelerate that transition,” he said, adding that the recent changes in India are “something they know how to move in on.”
Five-hundred rupee ($7.33) and ₹1,000 notes ceased to be legal tender in India on November 9 and must be deposited in banks by the end of the year, Prime Minister Narendra Modi said in a surprise announcement this month, sweeping away 86 per cent of the total currency in circulation. The move is seen as an attempt to fulfill his election promise of curbing tax evasion and recovering illegal income, locally known as black money, stashed overseas.
Accelerating payments
Visa released a report in October that laid out a framework for accelerating digital-payment acceptance in India that it said could save the country $70 billion over the next decade. Amitabh Kant, who heads the government’s National Institute for
visa and mastercard both benefit as paper currency or cheques turn toward electronics Moshe Orenbuch, analyst at Credit Suisse Group
Transforming India Aayog, said the report would help inform the discussion already under way on the topic.
“We are undertaking various measures to transition to a lesscash society,” Kant said in a letter attached to the report. “Achieving this goal would not only help reduce the size of the shadow economy in our country and the circulation of black money, but also lead to a significant increase in jobs.”
Mastercard “welcomes and supports” Modi’s decision, Porush Singh, the company’s president for South Asia, said. The prime minister’s “bold action and leadership is a critical step in positioning India to be a leader in the global cashless and digital economy movement.”
Mastercard partnered with the Indian government and the Indian Banks’ Association to develop policies that would encourage electronic payments in the country, Ari Sarker, co-president for Asia Pacific, said at a company investor day in September. CEO Ajay Banga has met with Modi on multiple occasions in his roles as member of the USIndia CEO Forum and former chairman of the US-India Business Council’s board.
Mastercard’s business “is converting people from cash to electronic payments,” Banga said in an interview this year with PwC. “Our single biggest contribution to society is taking cash out of the system. People think cash is free. Cash is not free.” — Bloomberg