The Reserve Bank of India (RBI) on Wednesday issued a draft circular on the issuance of debit, credit and prepaid cards, where customers have the power of their desired card network or issuer rather than continuing with the issuing bank or finance companies.
The central bank said in its draft circular that card issuers, such as Visa, MasterCard and RuPay, will issue cards across more than one card network and should provide customers the option to choose any one among the multiple card networks.
The central bank states that the proposed rules would be applicable to both banks and non-bank financial companies that issue credit cards, debit cards or prepaid cards.
What’s the proposal?
The Reserve Bank of India has proposed that from October 1, credit card issuers will be required to give customers the option to choose the network of their choice. Therefore, card users can switch from one network to another.
Indian customers currently have access to five credit card networks: Visa, MasterCard, RuPay, American Express and Diner's Club. From October 1, customers can shift to any network.
The RBI's draft circular also restrained card issuers from entering into agreements that limited their ability to link up with other card schemes.
“Card issuers and card networks should ensure that they adhere with these requirements in existing agreements at the time of amendment or renewal and fresh agreements executed from the date of the RBI circular,” the notification said.
The Reserve Bank of India added that this option may be exercised by customers at the time of issuing or later. The RBI said these changes will be effective from October 1 and stakeholder feedback is invited by August 4
What does the RBI expect to change?
According to the RBI, when banks tie up with card networks to offer their services, customers don't have the choice to choose those offerings.
The central bank noted that some banks require customers to accept certain card networks that they may not prefer.
"It is observed that the existing arrangements between card networks and card issuers (banks and non-banks) are not conducive to the availability of choice for customers,” the RBI noted.
In 2021, the Reserve Bank of India (RBI) indefinitely barred Mastercard, American Express and Diners Club from issuing new debit, credit or prepaid cards to customers over noncompliance with local data storage rules.
The ban was later lifted in June 2022 after the central bank noted the company's compliance with payment data storage regulations.
How can one port their credit cards?
As per RBI's proposed guidelines, the option of card scheme portability will be included in existing agreements either at the time of renewal or in fresh agreements executed from the date of circular.
The RBI said card issuers and card schemes will ensure they comply with the following requirements:
Existing agreements at the time of their amendment or renewal thereof, and Fresh agreements executed from the date of this circular.
Why does it matter?
India saw explosive growth in credit cards outstanding in FY23. According to RBI data, credit cards outstanding has soared to Rs 2 lakh crore, up 29.7 percent year-on-year. Banks have issued Rs 8.65 crore worth of credit cards, as of April 2023.
Presently, monthly credit payments exceed INR 1 crore every month and card payments touching Rs 1.32 lakh crore in the month of April 2023.
The introduction of customer priority in card network can warm up the segment and boost competition among international and homegrown network companies.
“Traditionally, consumer choice in cards in India has rarely been network-driven. Unlike in markets like the US, choice has been driven by issuer and core value proposition. The RBI proposal is an important step, as it will provide more choice to consumers, while ending exclusive issuer agreements it has made Card networks with major issuers This will provide banks with a much-needed incentive to issue credit cards on UPI, as it is clearly the strongest offering on the credit side of the Rupay network On the debit side, most of the issuance volume is currently on Rupay and most PSUs issue RuPay cards exclusively Default,” said Ranadurjay Talukdar, Partner and Payments Sector Leader at EY India.
“In the short term, for banks, the cost of implementation and compliance will go up. This is mainly because it is now a regulatory requirement. Most banks were already issuing multiple network cards, especially since MasterCard, Diners and American Express stopped supplying due to location data. Banks have already learned At the time it has multiple networks and plans for BCP. Other than that, co-branded cards are mostly exclusives and those deals will be subject to changes. To repeat again, changes are unlikely to be on the network," said Mohit Bedi, Kiwi's chief Business Officer and Co-founder.
He added, “For networks, especially newer and smaller ones like Rupay, Diners, etc., will gain cause more banks will start onboarding them. Visa and Master are two competing brands and since the circular specifies ‘any two networks’ they might give an option of not competing one. Hence, I feel Our home network will gain."
"There are genuine concerns from customers regarding substantially higher interest rates charged by banks for issuing a credit card. There are concerns about resolving complaints and transparency. It looks like the RBI wants to open up the card markets to the public." Fears. Although competition can hamper the profitability of card issuers and networks alike, we hope that the volumes shown will adequately offset the losses, said Dr A V Arunkumar, Professor, School of Business, RV University, Bangalore.
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