Explained: You can choose your own credit card network from 6 September
New Delhi, Mar 7, 2024
From 6 September, both banks and non-banking financial institutions issuing credit cards must offer customers the option to select from multiple card networks, including RuPay, Amex, Mastercard, Visa and Diners Club at the time of issuance or renewal.
The Reserve Bank of India on Wednesday issued guidelines aimed at simplifying the process for customers to select credit cards. The central bank has barred card issuers from entering into any arrangement with card networks which restrains them from availing services of other card networks.
The central bank also said that card issuers need to provide an option to their eligible customers to choose from multiple card networks at the time of issue. This flexibility extends to existing cardholders, who can opt to switch networks during the renewal process. However, these regulations only apply to credit card issuers with more than 10 lakh cards, and it also excludes those issuers operating on their own authorized card network.
How does it help consumers?
For example: A customer who is applying for a new credit card can now choose which network they want to use, such as Visa or Mastercard, rather than being restricted to using the network the issuer prefers. "This means they can choose a network that may have better rewards or benefits that suit their needs. Similarly, if a customer's current credit card is up for renewal, they can now switch to a different network that better suits their needs. If they have been using a Visa card but have found that new rewards are offered with the Amex network, they can switch to an Amex card during renewal," explained Adhil Shetty, CEO of Bankbazaar.
RBI’s new mandate would necessitate banks to enter into partnerships with more payment networks to offer consumers the choice.
"At the consumer level, this would largely help those who have a preference for the Rupay Network, to avail the additional benefits of seamless digital payments by linking their cards to UPI. The RBI directive would also allow network portability at the time of card renewal, allowing consumers to switch to their preferred network without having to apply for a new card," said Rohit Chhibbar, Head of Credit Cards Business, Paisabazaar.
The new guidelines are set to be effective from September 6 and are designed to offer customers enhanced flexibility and options in choosing credit card networks.
As of January 2024, there were 13 card-issuing banks with more than 10 lakh cards and 22 banks with less than that. But significantly, those 13 banks account for 92 per cent for all cards, and the top four alone accounted for 70 per cent.
The directive, mandating customer choice during issuance, is set to come into effect six months from now, which is September 6.
What happens currently?
The authorised card networks tie-up with banks / non-banks for the issuance of credit cards. The choice of network for a card issued to a customer is decided by the card issuer and is linked to the arrangements that the card issuers have with card networks in terms of their bilateral agreements.
Why does RBI want this changed?
"On a review, it is observed that some arrangements existing between card networks and card issuers are not conducive to the availability of choice for customers," the central bank said in a statement. This is why it has directed card issuers to not enter into any arrangement or agreement with card networks that restrain users from availing of the services of other card networks.
What is the RBI diktak?
Card issuers will have to provide an option to their eligible customers to choose from multiple card networks at the time of issue. For existing cardholders, this option may be provided at the time of the next renewal.Authorised card networks as per RBI are: American Express Banking Corp., Diners Club International Ltd., MasterCard Asia/ Pacific Pte. Ltd., National Payments Corporation of India–Rupay, and Visa Worldwide Pte. Limited.
Who is eligible?
The directives do not apply to credit card issuers with fewer than 10 lakh active cards.
Impact
"By allowing customers to choose from multiple card networks, the RBI will usher in a new era of dynamic competition, which will benefit the entire ecosystem tremendously. ..Imagine a scenario where a small business owner wants to prioritize lower transaction fees for everyday purchases. Previously, his bank’s network might have imposed a higher cost. With the new directive, the business owner will be able to choose a network known for competitive fees, potentially saving him significant money annually. Furthermore, the directive will compel networks to innovate and offer more tailor-made solutions to a diverse customer segment. We might be able to see more co-branded cards emerging for specific demographics or professions," said Rakshit Agarwal, co-founder, Rupicard.
[The Business Standard]
