The recent norms of the Reserve Bank of India (RBI) on card payment networks may push them to offer better pricing and features to issuers, which will, in turn, benefit customers, experts said.
“The RBI norms will compel card networks to provide better features and pricing to issuers to further pass them on to customers,” says Mihir Gandhi, partner – payments transformation, PwC India. “Card networks will now have to focus on how to create a pull structure as customers may start asking for a specific brand if they see a value difference.”
Recently, the RBI issued a draft circular that forbade card issuers from entering into exclusive arrangements with specific card payment networks.
According to the norms, cards must be issued across more than one network. They will also have to provide an option to eligible customers to choose one from multiple options. The RBI has invited stakeholder comments by August 4, and expects the circular to take effect from October 1.
“Even today, every bank has tie-ups with all three networks. But, customers will now be able to choose a network depending on use-case. This will push networks to increase visibility on their product suite,” says Mandar Agashe, founder and MD, Sarvatra Technologies.
The impact of the circular will be determined by the manner in which it is implemented. But, the structure of arrangements between card issuers and networks may undergo a change if customers are given a choice, say experts.
“Card issuers may not be able to fulfil exclusive arrangements or volume share arrangements anymore. If the fight comes down to individual customer segments, you will probably see networks providing offers at the time of choosing the card itself,” says Ranadurjay Talukdar, partner and payments sector leader, EY India.
Card payment networks play a role in processing transactions, and serve as a payment bridge between a merchant and a bank. Networks charge an interchange fee from retailers for services they provide. This fee varies from network to network and may also vary for different retailers.
While Visa and Mastercard are the major card networks in India, American Express and RuPay are also key players. Currently, both Visa and Mastercard have exclusive or near-exclusive arrangements with almost all leading banks for both credit and debit cards.
According to these arrangements, banks are required to issue a specific number of Mastercard or Visa cards in lieu of a cash incentive. Every network has three-to-four card variants and each of these variants maps back to a customer segment like mass market, mass-affluent, affluent and super-affluent.
“We do not know whether this choice on card network will come down at the level of customer segment. All we know is that customers have to be given a choice of network,” Talukdar said.
The RBI norms may also give a fillip to RuPay due to its interoperability with the Unified Payments Interface (UPI). “We believe a large set of customers is now looking to use their credit cards via UPI. Customers with existing cards are also looking to have this UPI interoperability,” says Adhil Shetty, CEO, BankBazaar.com. While RuPay and UPI are going global, Shetty says RuPay customers may also be able to migrate their cards to Visa or Mastercard if they are travelling to destinations where RuPay is yet to be widely accepted.