Experts and banks welcomed the Reserve Bank of India’s directive that said issuers of credit cards shall not enter into any arrangement or agreement with card networks that restrain customers from availing the services of other networks. The directive means customers will now be able to choose from card networks such as Visa, Mastercard and others at the time of issuance. “The RBI’s recent directive is a significant milestone in fostering a more consumer-centric approach within the credit card industry. By mandating the availability of multiple card networks for customers, it is embracing a culture of choice and empowerment. This directive underscores RBIs commitment to putting customers first, ensuring they have the freedom to choose the card network that best suits their needs. It aligns with the vision of fostering healthy competition and innovation within the market, ultimately leading to better outcomes for consumers,” said Suresh Shukla, CBO, SBI Securities.
As per RBI guidelines, authorized card networks work with both banks and non-bank entities to issue credit cards. The choice of which network is used for a customer’s card is determined by the card issuer, whether it’s a bank or a non-bank institution. This decision is influenced by agreements between the issuers and the card networks. The new directive, which is slated to take effect in six months from now, effective September 6, will enhance customer options and flexibility in credit card issuance by card networks. The RBI stipulated that both card issuers and networks are obliged to adhere to these requirements within existing agreements, upon amendment or renewal, as well as in new agreements.
“Though the current norm was already under draft notification, it will necessitate the card issuing company (including major banks and NBFCs) to strengthen their card issuing framework to make end customers aware about the options available on the card network side. This will require additional efforts for new to card customers,” said InCred Equities.
Asish Philip Abraham, Partner at Lakshmikumaran & Sridharan Attorneys, added, “The circular is providing greater flexibility for the customers and additional onboarding challenges. The circular is providing a negative covenant in relation to exclusive anti-competitive arrangements with card networks which may impact the customer choice. The success of implementation of choice/portability of the card network will depend on positive arrangements entered by card issuers with other card networks. This will have a positive impact on domestic card network powered by NPCI.”
Ambuj Chandna, President – Consumer Assets, Kotak Mahindra Bank, said, “This in line with RBI’s vision of bringing in credit card portability, offering customers the choice of a network. As a leading bank, we support this. As of today we do work with all key networks – both International and RuPay. In fact, we offer a wide range of 6 credit cards on RuPay which can be used for UPI transactions.”
However, the circular by the central bank clarified that these directions do not extend to credit card issuers with fewer than 10 lakh active cards. “The specified card networks outlined by the RBI include Rupay, Amex, Visa, Mastercard, and Diners Club. It is noteworthy, however, that these regulations do not apply to credit card issuers with an active card issuance of 10 lakh or less, and they are also exempted if they operate on their own authorized card network. There are only 13 banks above the 10 lakh limit but they have a 92 per cent market share, and four alone have a 70 per cent share,” said Adhil Shetty, CEO, BankBazaar.com. “This regulatory measure is expected to foster a more competitive and consumer-friendly environment within the credit card industry,” he added.
For banks and card issuers, this directive may require some adjustments, but it presents an opportunity to strengthen customer relationships and enhance competitive edge. “By prioritizing customer choice over exclusive partnerships, it is paving the way for a more transparent and customer-friendly credit card ecosystem,” said Suresh Shukla from SBI Securities. Similarly, for card networks, he added, this directive signals a shift towards a more dynamic and competitive landscape. It challenges to innovate and differentiate services to attract and retain partnerships in this evolving market. “Overall, this directive reflects the RBI’s commitment to promoting a fair and inclusive financial system,” he said.