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RBI blocks American Express and Diners Club from on-boarding new customers

The Reserve Bank of India (RBI) imposed business sanctions on American Express and Diners Club, two major global card networks, for violations with the regualtors’ data localisation norms. This is the first time the central bank has imposed business sanctions against card network companies and payment operators in India due to non-compliance with the data storage norms.

On Thursday, the RBI barred Amex and Diners from on-boarding new Indian customers from May 1, 2021 onward. “These entities have been found non-compliant with the directions on Storage of Payment System Data. This order will not impact existing customers. American Express Banking Corp. and Diners Club International Ltd. are Payment System Operators authorised to operate Card Networks in the country under the Payment and Settlement Systems Act, 2007 (PSS Act).”

Back in April 2018, the RBI introduced new data storage or data localisation norms on payment companies. Under these new rules, all domestic customer transaction data had to store data in servers located in India. Only based on certain exceptions and under some conditions, could the data be transferred and used abroad. Foreign and domestic payments companies would have to provide a compliance certificate based on an IT system audit to the RBI, to continue their operations.

While the RBI made certain exceptions for large foreign firms to comply with the data localisation rules, three years later some large entities are still languishing behind. In the case of WhatsApp Pay, a payments service on the Unified Payments Interface (UPI) network, the RBI intervened in the approval process and asked that auditors conduct more checks to ensure that specific data was not being stored by the company abroad.

A spokesperson for American Express said, via email, that they are in regular dialogue Reserve Bank of India about data localisation requirements and have demonstrated their progress towards complying with the regulation.

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“While we’re disappointed that the RBI has taken this course of action, we are working with them to resolve their concerns as quickly as possible. This does not impact the services that we offer to our existing customers in India, and our customers can continue to use and accept our cards as normal”–American Express

According to RBI data as of February 2021, American Express had close to 1.6 million credit cards in India with Rs 2,324 crore in cards spends at point-of-sale terminals. Diners Club has operated in India since 2011, through a tie-up with HDFC Bank.

In December 2019, the RBI imposed sanctions on HDFC Bank and barred the bank from on-boarding any new credit card customers. It also ordered a third-party IT audit of the bank’s entire infrastructure in light of several technical outages and system downtimes at the bank in the last few years.

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