India Card ‘Rupay' Will Challenge MasterCard, Visa in Asia

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The National Payments Corporation of India (NPCI) has finalized the commercial launch of the proposed India card which would be a domestic alternative to the global payment processing firms. MasterCard ( MA ) is the second largest global payment solutions company in the world and provides a variety of services to support the credit, debit and related card payments of over 24,000 financial institutions globally and given the size of India, this could have an impact on MasterCard's international transactions growth, which we discuss below. Its main competitors are Visa ( V ), American Express ( AXP ) and Discover Financial ( DFS ).

Transaction processing is the major revenue source for MasterCard and by our estimates constitutes about 32% of the $293 Trefis price estimate for MasterCard's stock .

The Reserve Bank of India (RBI) in 2009, had asked the Indian Bank Association to launch a non-profit payment solutions company to meet the requirements of domestic banks. After almost 2 years of planning, NPCI has finalized the name of the proposed card as Rupay which will launch later this year. The Rupay will resemble China's Union Pay which is the domestic real-time payment processing firm for Chinese banks.

RBI in its vision paper on payment systems in India said that the need for such a system arises from two major considerations: 1) the absence of a domestic price setter has caused the Indian banks to bear the high cost for affiliation with international card associations, and 2) the connection with international card associations resulting in the need for routing even domestic transactions, which account for more than 90% of the total, through a switch located outside the country.

Electronic Payment Market in India

India has been one of the fastest growing countries for payment cards in the Asia-Pacific region. According to the RBI, debit card transactions in India rose 49% in January 2011 to reach Rs. 37 billion (approximately $830 million) from about Rs. 25 billion ($557 million) last year. The number of debit cards in use also rose by 25% during this period. Credit card transactions also rose 28% in January 2011 compared to last year to about Rs 69 billion ($1.54 billion).

How is MasterCard Affected?

In our analysis of MasterCard, we estimate that the number of transactions processed by MasterCard will grow from 22.6 billion in 2010 to about 56.8 billion by the end of our forecast period at a compound annual growth rate of 14%. Much of this growth will come from the Asia-Pacific region as consumers in this region are only beginning to embrace widespread use of electronic payment methods.

If India card Rupay gained popularity and other countries in the Asia-Pacific region decide to follow suit, MasterCard's number of transactions could only grow at a rate of lower rate than we forecast. In a scenario where the number of transactions processed by MasterCard would reach only 50 billion by the end our forecast period and grow at a slower rate of around 12% annually, this would cut our price estimate for MasterCard by about 5%.

See full analysis for MasterCard



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: AXP , DFS , MA , V

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