 "Banks must give customers choice to select credit card network: RBI")
The Reserve Bank of India (RBI) on Wednesday asked banks and non-banking financial companies (NBFCs) to provide customers with the option to choose from multiple networks for credit cards.
The RBI has prohibited card issuers and networks from making any arrangement or agreement that restrains customers from availing the services of other card networks.
“Card issuers shall provide an option to their eligible customers to choose from multiple card networks at the time of issue,” the RBI said. For existing cardholders, this option may be provided at the time of renewal.
The regulator’s directive will be effective six months from now, that is, from September 6.
The RBI authorised card networks are American Express Banking Corp, Diners Club International Ltd, MasterCard Asia/ Pacific Pte Ltd, National Payments Corporation of India (NPCI)–Rupay, and Visa Worldwide Pte Limited.
The circular, however, has not clarified if the norms are applicable for co-branded cards. While a particular bank may offer multiple card networks to their customers, there are certain co-branded cards that are offered only on one platform.
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“If you go by the way the circular is written, every card will need to have at least two networks. And the agreement for that particular card may not be restricted to a certain network,” said the head of cards of a private sector bank.
“Yes, certain cards, co-brands are with a particular network only. Some of these choices are that we make, and in certain cases, it is a decision that has been taken for commercial consideration. I think we will seek some clarification on that,” the official said.
The norm will not impact American Express, as the circular said those “who issue credit cards on their own authorized card network are excluded from the applicability of the circular”.
The norms will be applicable for card issuers with the number of active cards issued by them is over 1 million. Twelve issuers, including HDFC Bank, SBI Card, ICICI Bank, and Axis Bank, have more than 1 million cards.
The RBI said it found in a review that some arrangements between card networks and issuers are “not conducive to the availability of choice for customers”.
The network for a card issued to a customer is currently decided by the card issuer, based on bilateral agreements.
“The RBI’s broad intention seems to allow Rupay, the domestic card network championed by the NPCI, a fair opportunity to break the dominance of international card networks, which are mainly Visa and Mastercard,” said Shivaji Thapliyal, head of research and lead analyst, YES Securities.
“It may be noted that Rupay is a unique card network since it is the only card network on which the credit card on UPI facility is available. Hence, the success and ubiquity of Rupay credit cards are linked to and will impact traction for the credit card on UPI facility,” Thapliyal said.
Credit cards are growing at a steady pace in India, with the total number inching towards 100 million. There were 97.9 million outstanding credit cards as of December 2023, with a record addition of 1.9 million in that month, according to RBI data. Calendar year 2023 saw the addition of 16.71 million cards, from the 12.24 million added in 2022.
This growth trend has been consistent over the past five years, with the number of credit cards in circulation swelling by nearly 77 percent from 55.53 million in December 2019. This uptick is driven by a combination of sustained push from banks and evolving consumer spending patterns.