In the aftermath of the November 2016 demonetisation, card-based transactions have grown rapidly, buttressed, among other things, by incentives from the government and the RBI to augment cashless modes of transaction in general and electronic modes in particular.

Continuing with its focus on interests of card holders (CHs), the RBI, on July 5, proposed that the card issuers (CIs) should issue cards across multiple card networks (CNs) and provide an option to their eligible customers to choose any one among the multiple CNs. Further, CIs should not strike any arrangement/agreement with CNs that restrain them from availing the services of other CNs.

The proposed directives are definitely customer-friendly, and the commentators as well as creditworthy customers have welcomed those. However, the comments have hitherto highlighted the customers’ likely gains, but neglected the CIs’ viewpoints and certain other pertinent issues. This piece endeavours to bridge this gap.

It is conjectured that a CI will have one international network provider, given the cost constraint (e.g., VISA/Mastercard) and the indigenous RuPay network promoted by the National Payments Corporation of India, the non-profit payment behemoth. The RuPay cards are expected to receive a fillip (especially in the credit card space), which will intensify competition between VISA/Mastercard and the former. Further, with the government’s thrust on making the Unified Payments Interface (UPI) a low-cost medium for cross-border payments, the Indian diaspora may favour the RuPay network.

CIs have to pay the new network provider annual licensing fees and other fees, if any. Besides, they have to invest in installation/modernisation of additional/existing IT infrastructure, and the compliance cost on them will increase. It is probable that the additional costs will be passed on to CHs (existing and new), or some of the existing facilities will be restricted to them.

Smaller banks like old private banks and co-operative banks may find it difficult to onboard multiple networks due to likely cost escalations.

Since the network providers would know that CIs have to ‘mandatorily’ provide multiple network options, the bargaining power would lie with them for setting the terms and conditions with CIs which may disrupt the existing market with massive adoption of UPI.

While choosing a card, most of the card seekers generally look at the annual fees, likely credit/cash limits, merchants’ acceptability, and overdue payment penalty. Very few, perhaps the financially sophisticated consumers, enquire about the network provider. Moreover, CHs rely on CIs for any service issue. Having multiple CNs will likely confuse the consumer in selecting a particular card.

Offering cards linked to different network providers would necessitate CIs to train their staff rigorously so that they can explain to the potential card buyers the merits/demerits of the networks. Otherwise, the performance may be as lacklustre as observed in respect of ‘cross-selling’ by banks.

It is probable that CHs will switch from one network to another more frequently, as observed in respect of mobile networks. However, frequent switching of networks or even CIs may make the latter suspicious, which may adversely affect CH’s credit history.

It is important that the CN chosen by a CH is honoured by as many merchants as possible. Otherwise, they may opt to switch the network. This would necessitate increasing the merchant acquisition pace by CNs. Introduction of QR Code at the merchant outlets and customers’ preference for it, combined with multiple formalities required for Point-of-Sale (PoS) installation, have substantially reduced dependence of merchant outlets on PoS. Hence, providing multiple CNs is unlikely to find much acceptability.

CIs may be internally or emotionally biased to promote the network which benefits them more than CHs.

With additional networks to offer, CIs will be required to expand and fortify their management of credit risk, interest rate risk and last but not least, the cyber fraud risk, which is rampant in the card segment. In fact, the cyber fraud risk is one of the major reasons for the Indian consumers to migrate to popular and safe digital options like UPI and QR Code.

As CHs increase, so will the complaints. In fact, card-related complaints dominate the complaints received by the Offices of the RBI Ombudsman: during January-March 2023, credit card and ATM/CDM/Debit card complaints together constituted 25.7 per cent of the total complaints. Therefore, CIs will have to reinvigorate their complaints management and grievance redressal system in order to preclude reputational risk.

The gross non-performing assets ratio of credit card receivables pertaining to scheduled commercial banks stood at 2 per cent at March-end 2023, up from 1.9 per cent a year ago. While public sector banks had the ratio at 18 per cent (up from 10.3 per cent a year ago), private banks had it at 1.9 per cent (up from 1.8 per cent a year ago).

Indian consumers’ acceptability of interoperable payment systems like UPI and QR Code, which are being continuously upgraded, have surpassed card-based payments, volume- and value-wise. Additionally, the Central Bank Digital Currency is on the anvil. Therefore, allowing CIs to offer multiple networks will have its own challenges vis-à-vis safer, speedier and more adaptable payment options.

Based on the above arguments, it is felt that while customers’ interests should unquestionably remain paramount, the regulator should also consider the benefits, costs and risks to CIs, simultaneously ensuring greater inclusion and safe banking practices.

Das is a former senior economist, SBI, and Rath is a former central banker. Views are personal