How localization of data will affect firms, consumers

Data localization has taken centre stage after the release of a draft e-commerce policy and the Srikrishna report. Now, Google has agreed to comply with the Reserve Bank of India’s data localization norms. Mint gives the low-down on the issue.

What is data localization?

Data localization is the practice of storing data on any device that is physically present within the borders of the country where the data is generated. Free flow of digital data, especially that which can impact government or regional operations, is restricted by some governments. Many try to protect and promote security across borders and, thus, encourage data localization. While there is enough reason to support data localization, misguided policies can have harmful consequences for citizens and economies alike.

What has RBI said?

A 6 April RBI circular said: “All system providers shall ensure that 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.” It added that for the overseas leg of a transaction, the data may be stored in the foreign country. Last week, RBI told payment firms to submit fortnightly updates on the progress made on storing data in India.

What’s the rationale for the RBI regulation?

RBI says unfettered access to data stored by system providers and third-party vendors in the payments ecosystem will ensure better monitoring.

Which are the firms likely to be impacted by the regulations?

Global digital payment firms such as Visa, American Express, Facebook, PayPal, Mastercard and Google are likely to be impacted by the regulations. A Reuters report said US trade groups, representing firms such as Amazon, American Express and Microsoft, have opposed India’s push to store data locally and that the issue could further undermine strained economic relations between India and the US.

What’s the expert view on the matter?

Payment firms have to abide by the laws framed by the government and RBI. They may seek some relaxations related to payments. “There is no comparison between the financial data stored by Google Pay and other payment operators such as Visa and Mastercard,” an expert said on condition of anonymity. Visa, Mastercard process more data, most of it pertaining to cross-border transactions, the person added.