Localisation of payment storage system: Is India trying to fix American companies’ responsibility?

With India tightening screws on data regulation, US payment companies which used their country’s law makers to lobby with New Delhi for softening its stand on the issue, have now begun to realise that they have met with dead wall in the form of the Reserve Bank of India as it has refused to budge.

After all, why India’s central banking institution is so rigid in its call on the multinational companies that they have to abide by its directive on setting up data storage centres in the country?

In April, the RBI issued a directive to companies that all data related to payments must be stored in India by October 15. It was issued keeping in mind several factors, including monitoring of end-to-end data related to payment system operated by companies like Visa, Mastercard, American Express, Amazon, Alibaba, Whatsapp, Google Pay, PhonePe and Paytm.

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Except for Paytm and Phonepe, which are domestic payment companies, the rest is American payment system providers.

While domestic payment players have readily agreed to follow the RBI directives, some of foreign players are digging their heels in on the issue of keeping their servers in India. They say the RBI move is against free flow of data. Some American Senators go to the extent of terming the data localisation policy as a move that will adversely affect the US business in India. Despite this, the country’s central banking institution is unmoved.

The government of the day is also backing the RBI in its initiative, which is full of dividends, largely on security and economic fronts. According to a conservative understanding, it will help bring more Indians who still buy and sell things using cash, into the formal online economy.

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The move will also help create new jobs in the market as storing data in India means hiring analysts and data specialists to process the data. That means more investment in digital infrastructure. And it is here, US companies fear that they will have to open extra-large purse to build date storage system with all attendant security system in India.

To escape from this burden, they say they will place a data mirror system (a duplicate of main data server) in India. But they appear to be insular in their understanding. They forget that in the fight against money laundering and terrorism, close supervision of monetary channels is essential.

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With bandwidth of digital economy in the country growing day by day, there are chances servers kept in offshore destinations don’t help Indian authorities in keeping track of money’s movement. A country’s sovereign rules apply on an asset if it lies in its geographical boundary.

Since Indian data is stored by big digital companies in the US, it means that data is subject to the US’ rules and regulation.

No Indian official can lay hands on a particular data without permission from the US authorities. And this is seen as barrier in the smooth supervisory mechanism. At the time when many crooks try to evade Indian authorities’ eye by channelising money through complex digital gateways, it is imperative that all offshore digital payment facilitators do what suits India’s interests.

If they can keep their servers in Europe, what is the harm in keeping in data storage system in India? They should bear in mind that payment data is a very sensitive issue and as such regulator’s requirement needs to be prioritised, instead of subjecting it to politicization. The US companies are lobbying with their Senators and officials of the Trump administration to take up the localisation issue with the Indian Government. But how hard they may try the determined central bank institution is in no mood to compromise with its directive on the localisation of payment data server. This is a welcome development.

The Justice B N Srikrishna Committee has also emphasised on the localisation of data storage system in the country. Although deadline for setting up payment storage systems in India expired on October 15, yet the good thing is that over 80 per cent companies, including American ones, have complied with the RBI directive. Rest of them will also follow suit soon, but the larger question is: Whether the central banking institution’s move is aimed at fixing American companies’ responsibility on the payment data issue?