The Reserve Bank of India on Friday barred American Express and Diners Club International from onboarding new customers on their network following their non-compliance with data storage norms. The ban comes into effect on May 1.

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In a statement, the country's central bank said, "These entities have been found non-compliant with the directions on storage of payment system data." The RBI added that the action was being taken in exercise of powers vested under Section 17 of the PSS Act.

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).

Why and what have they been banned for?

In 2018, the RBI, in a notification, observed that not all payment system providers stored the payments data in the country. It said that India had witnessed significant growth in the payment ecosystem. It added that such systems depended heavily on technology which necessitated adopting safety and security measures that were best in class, on a continuous basis.

The RBI then directed that all system providers shall ensure the entire data relating to payment systems operated by them are stored in a system only in India.

"This data should include the full end-to-end transaction details/information collected/carried/processed as part of the message/payment instruction," the bank said, in its notification. The foreign leg of the transaction, if any, the data can also be stored in the foreign country, if required, it added.

The system providers were also directed to ensure compliance with the new rules within a period of six months and report the same to the RBI.

Additionally, they were also supposed to submit a Board-approved System Audit Report (SAR) conducted by a CERT-In empanelled auditor within the timelines specified therein.

What happened next?

The RBI's decision to restrict American Express and Diners Club International from taking on-board new customers indicate that the two companies failed to follow the instructions issued to payment system providers two years ago.

Does it impact existing customers?

No. The RBI clarified, in its statement, that the ban will have no impact on existing customers of both entities.

According to a Financial Express report, American Express had 15.6 lakh credit cards outstanding, having 2.53 percent of the total market. The Diners Club cards are issued exclusively through HDFC Bank in India and their active numbers as of now are not known.

First Published:Apr 24, 2021 2:44 PM IST