Global card payments major MasterCard has invested a billion dollars in India in the last five years and 14 percent of its workforce are currently based in the country. The company remains highly committed to the India digital story, says Ari Sarker, Co-President for Asia Pacific, Mastercard, in a interview with CNBC-TV18. Here are the excerpts:

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You have been consistently investing in India and the assumption was that post 2016, we would see a further commitment to the Indian market because 2016 was a watershed year for the digital transaction space. So what are your plans for India?

We are extremely bullish on India. If you look at the last five years’ journey for MasterCard in India, we have significantly increased our presence in the country. We have invested about a billion dollars in India in the last five years and are now upping our investments over the coming five years to another billion dollars.

A big component of this investment is a very significant shift that MasterCard is doing. We are going to build our global technology hub in India. We are a global platform company and our payment technology is applicable across 200-plus countries around the world. India is now going to be a part of that global node and this is a very significant opportunity for the country. This investment means, not only will we be able to service the India market but it also provides us the flexibility to service other markets as well from India.

Let me pick up the announcement from you of fresh $1 billion investment commitment to India over the next five years. Between 2014 and 2019, you had committed a billion dollars. Has it been utilised completely?

Absolutely, we have utilised that, we have made acquisitions, we have created very significant presence of our technology centres and now we are really looking at adding that extra billion given the confidence that we have had over the last 5 years.

Break up this fresh billion dollar investment plan. How much of it is going to go into expanding the existing infrastructure, how much of this will be used for this global technology centre and what will it mean in terms of workforce addition?

Roughly around $350 million-odd will be earmarked for building up the global technology node and there is roughly about $650 million for the expansion of our existing presence in India. We are also looking at some partnerships across India which will mean more investments into our partners. We are creating an ecosystem beyond just payments and that’s where our energy and focus are going to be.

You were talking about enhancing existing partnerships and perhaps inking fresh ones. What is the fresh target now as far as the merchant network is concerned?

The merchant network story has been a phenomenal one for India. If you look at pre-demonetisation, India’s merchant base was about 1.3 million. Today we are in the north of 5-million range. We think the merchant universe story over the next 5 years will see significant transformation. The 5 million could look like 50 million in the next 5 years and that is a very significant step-up for India as a whole.

Let me talk about trends since you talked about 2016 and how the digital transaction space has seen a significant growth particularly in 2016 when we saw that big jump on account of demonetisation. What are the trends that you are currently observing because cash is back in the system, perhaps the delta is not as large as it would have been, had demonetisation not happened, but what are the trends that you are observing specifically when it comes to card usage. Credit card continues to grow; 26 percent in FY18 which is perhaps the best in the last 5 years but debit cards are not so; growth of just about 8 percent odd in FY18. So what are the trends that you are seeing in this space?

If you look at debit card, purchase volume numbers went up 300 percent after demonetisation. I would say for the first two quarters post demonetisation the watermark went up 300 percent. There was an expectation that once cash was coming back into the economy you will see a decline in those volumes yet it will be higher than where we were traditionally, but it would certainly come down from the peak period of demonetisation. Interestingly, that has not happened. You continue to sustain the volume lift that we saw during those very critical months. Yes, of course you are not going to see 300 percent growth every year. We saw some fairly robust growth in 2017. Regarding 2018, you were right, the growth rates slowed down. But as we look at the MasterCard network, we are seeing growth. You are right, credit is growing at a faster pace but not too long ago debit card volumes were only a fraction of credit card volumes. Today debit card volumes are actually bigger than credit card volumes as an overall market.

What seems to be getting in the way of growing the debit card side of the business? What are the challenges for you to be able to keep the

double-digit sort of growth numbers going? In FY18, growth had slowed down to about 8 percent year-on-year. Is it infrastructure challenges, costs? What’s the issue ?

There are really three things, some of it is beyond technology. Firstly, one has to keep pushing the merchant acceptance base. We got 5 million, we got to keep pushing ahead to expand acceptance. The other part where MasterCard is putting a lot of energy is the awareness building in middle India. You have to go beyond the big 15-20 cities and go deeper into middle India where we do a lot of our advertising campaigns. We have signed up Mahendra Singh Dhoni as our brand ambassador. Last year, we reached over 500 billion people in 8 vernacular languages. So awareness of digital payments’ capabilities and growth of what we call e-commerce into middle India are going to drive the volume growth story over the coming years.

None of this is going to happen overnight. I just want to be very clear, but it’s a journey that one will necessarily have to go through. We are seeing much stronger volume growth in tier-II and tier-III cities. We are seeing e-commerce growth at a fairly robust click and in the e-commerce space you do need a digital payment capability. We are seeing a lot of card usage, we are seeing IMPS and UPS grow, and as awareness grows the volume story will expand over the coming years.

The merchant community is an equally important stakeholder. Our partnership with the Confederation of All India Traders, with whom we have been working for the last 4-5 years, is again driving education of merchants on why digital is important. As we drive that education, we bring more of the informal economy into the formal economy.

Consumption has been driving the Indian economy especially in the last few years. But after the NBFC scare, we see consumption slowdown across sectors, and now it seems to be impacting even the broader economy, FMCG etc. Are you noticing any evidence of that in the space?

If you look at January-February, we were off to a slower start. We think the momentum is coming back again. When we look at our trend numbers on a weekly basis, momentum is much more positive than the start of the year.

So how much slower was January and February compared to the year ago?

I would say about 6.7 percent. But we are extremely bullish that volume momentum is coming back. One thing has to be recognised; 90 percent of India’s retail payment industry is still cash, so the movement of cash to digital and electronic payment is very strong and we think that momentum will continue for some time to come.

What are trends are you observing in terms of consumer spending at this point in time?

We are not sensing any significant reduction in consumer spending, whether it is consumer spending at domestic level or cross border spending power. If I look at the last 6-7 weeks, I am fairly bullish on the overall growth story for India.

Let me ask you about what has been a cause of concern and that has to do with change in regulatory environment, specifically with data localisation. October 2018 has come and gone, you were not compliant then. What is position now regarding compliance?

In October 2018, we were able to get our transactional data resident in India. In fact we met the October 15 date to have the data located in India, It is not just in India, I think in that journey we have been in deep consultations with the RBI and really trying to work through a model that will enable us to meet the RBI objective. We think we have made good progress.

But do you understand the RBI’s objective and do you believe that this in the long-term will protect the Indian consumer or will in fact work the other way because if you talk to both sides of the people on the fence of this argument – one is that if the data is disseminated in different places it actually protects the consumer as opposed to data being localised in one particular jurisdiction and in this case in India. So what is the conversation with the RBI has been about?

Yes, we do understand the RBI objective. We have tried to work with the RBI, we understand the position. The transactional data at an aggregated level is used for what we call fraud scoring and this is really artificial intelligence-based fraud scoring, which takes into account consumer behaviour patterns and we do this at a global level and our concern that has always been shared is that if you make data reside only in India and it is to be used only for India market then there is a challenge that India may not be able to benefit from global fraud scoring trends.

So you have complied with one big aspect of the RBI’s regulation which is that data should be resident here in India, you haven’t yet complied with the second big task which is that it should reside only in India. How long will it take for you to get that done?

We had started work many months back and I think the conversations with the RBI has been that these things take a little longer than just a few months and we have shared the road map with RBI on how are systems going to be localised.

We have had endless debates on data localisation and the pros and cons of it, but practically what does it mean? What are the changes, give me the main changes that you had to make?

We had to create a data warehouse in India to put the data into India. The next change that we are doing now is that data has to be only in India and that is the current discussion with the RBI. If we are able to use data until transaction settlement and then deliver the data exclusively in India, that is the current level of architecting that MasterCard is doing. As far as consumer is concerned, there is absolutely no challenge. The challenge is for us to make sure that we are living up to the promise, the brand promise that we have to the consumer. At the same time, we are able to get regulatory compliance and that is the journey that we are moving ahead with. We are very confident that we will meet the RBI's objectives in its totality.

You talked about setting up a data warehouse in India to comply with the regulations. So on account of regulatory changes, there is card tokenisation and so on and so forth as well. What kind of investment would that require? Will that be part of this billion dollar investment?

Yes, $3-4 million will go to build our global technology platform in its complete entirety in India over the next two years. The investments that we have already made from October of last year will all be helping our ability to build that global technology hub network here in India. It is a fraction of our overall commitment. What we are spending now to make data reside only in India is only a fraction of what this overall global technology node investment have been required.

Speaking of innovations and I think this is something that a lot of people have perhaps commented on including NITI Aayog CEO Amitabh Kant who believed that it would be the end of the plastic industry so to speak in the next few years. While that may not happen, what are we going to see in terms of evolution beyond partnerships?

If you look at our business, we are powering up. Incidentally, we don’t issue plastic. We embed the technology in plastic and now that technology is getting embedded into mobile devices. When you use Apple Pay or Samsung Pay, the fact that your card credentials are stored digitally on to those devices is enabled through technology from MasterCard and other networks. Those form factors will continue to grow in a rather diverse way. If you look at global estimates in the next 5-10 years they will be over 60 billion connected devices in the world including phones and wearables.

This is tremendous opportunity and as consumers drive for more digital acceptances our whole strategy is really about creating more choice for consumers. In some cases consumers will use the plastic so if you want to use the transit system you might use the plastic. If you want to use your e-commerce purchase you will use tokenise credentials. If you want to exercise tap at pay at a merchant you might use your Samsung Pay which is in your mobile device and our strategy is to make yourself embedded in every possible form factor with the highest levels of safety and security. Imagine a world of billions of connected people and billions of connected devices, I think safety and security will be an extremely important ingredient to make sure people don’t lose confidence in the digital economy.