The Reserve Bank of India (RBI) has asked banks and non-banks to let their customers decide the authorised card network for the credit cards issued to them. This effectively means that credit card issuers, especially those with a large customer base, will have to enter into tie-ups with multiple card networks.

Currently, the choice of network for a card issued to a customer is decided by the card issuer (bank/non-bank) and is linked to the arrangements that the card issuers have with card networks in terms of their bilateral agreements.

Now, RBI has barred card issuers from entering into any arrangement or agreement with card networks that restrains them from availing of the services of other card networks.

Not conducive

The central bank observed that some arrangements currently existing between card networks and card issuers are not conducive to the availability of choice for customers.

“Card issuers shall 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,” per the RBI’s circular on “Arrangements with Card Networks for Issue of Credit Cards.” The circular was issued on Wednesday.

The directions under the aforementioned clause will be effective six months from the issue of the circular.

The clause relating to choice of card networks for customers, however, is not applicable to credit card issuers whose active card base does not exceed 10 lakh. Further, the circular is not applicable to card issuers who issue credit cards on their own authorised card network.

More Competition

With card issuers expected to work out arrangements with multiple card networks, there could be competition among the latter, which could push down the merchant discount rate (MDR). MDR is the charge recovered by the acquirer (entities which enable the acceptance of payment instruments) from the final recipient of money (the merchant). The networks could even throw in discounts and cashbacks to lure credit card customers to their network.

Card networks facilitate the issuance of card-based products like credit cards, debit cards, and prepaid cards and primarily function as a merchant payment system.

There are five authorised card networks in India: American Express Banking Corp., Diners Club International Ltd., MasterCard Asia/Pacific Pte. Ltd., National Payments Corporation of India-Rupay, and Visa Worldwide Pte. Ltd.

Banking expert V Viswanathan said: “Annual charges, renewal charges, and conditions vary from network to network. Normally, payments settled by global card networks are perceived as costlier vis-à-vis RuPay cards. For foreign travellers or remitting funds abroad, global card networks will be seamless.”

He opined that the customer might find it easier to get RuPay credit cards compared with MasterCard, Visa, and Amex credit cards due to the more stringent requirements to get credit cards from the latter network.

Credit card base

Banks had an outstanding credit card base of 9.95 crore as of January 2024. Loans outstanding against these cards stood at ₹2,58,524 crore as of January 26, 2024, per RBI data.

Six banks have more than 50 lakh card bases. HDFC Bank has the biggest card base at 2.01 crore, followed by the State Bank of India (1.86 crore), ICICI Bank (1.68 crore), Axis Bank (1.37 crore), Kotak Mahindra Bank (59.71 lakh), and RBL Bank (51.13 lakh), per RBI data.

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