The RBI has mandated credit card issuers to provide consumers the option to choose the card network at the time of issuance/renewal of credit cards. Starting September 2024, card-issuers (banks or non-banks) providing credit cards on a particular card network (e.g., Visa) will have to diversify their offerings to include at least one more network (e.g., RuPay).

At the outset, the RBI must be lauded for being a progressive regulator by deeply rooting major policy decisions in extensive public consultation and being responsive to industry feedback.

This is reflected in the flexibility built into the Circular by: (a) carving out an exception for credit card issuers whose active cards issuance is 10 lakhs or less; (b) exempting card issuers who issue cards on their own network; and (c) limiting the scope of choice of card network only as far as ‘credit cards’ are concerned, as opposed to the draft circular, which was applicable to debit/prepaid cards as well. This selective approach perhaps aims to pilot the implementation with credit cards and then, depending on its success, potentially extend it to debit/prepaid cards.

Diversifying choices

In addition to diversifying consumer choices, this Circular goes a step further in promoting interoperability between card issuers and card networks, with the aim of restraining exclusive arrangements. This will remove card issuers’ reliance on a particular network for serving all users whilst safeguarding them from any major network disruption, cyber-attacks and other contingencies.

Various factors, such as rewards and benefits (e.g., airport lounges), interoperability with UPI (e.g., RuPay), and customer services, will play a crucial role in continuing to boost the uptake of card networks. This will be important in terms of the ability of credit cards to continue supporting the tepid consumption expenditure.

Compliance challenges

The credit card sector is poised to face additional compliance challenges and increased costs, encompassing re-negotiation of existing arrangements, establishing technological infrastructure for routing payments through multiple card networks, engaging in consumer outreach, and addressing critical areas such as data protection and cybersecurity.

Globally, the diversity and interoperability of multiple card arrangements is very advanced. In countries like Denmark and France, co-badged cards offer customers and merchants the flexibility to choose between domestic card networks for local transactions and international networks (Mastercard/Visa) for overseas transactions, which are inscribed on the same card. A detailed analysis is required to juxtapose it with India’s unique demographics and market requirements, including customer awareness, literacy rate, and spending patterns, for a successful policy implementation of scaled-up interoperability in the future.

The RBI cites the lack of customer choice as its rationale for this policy decision. However, some banks already offer credit cards on different networks based on their commercial agreements. This raises questions about the necessity of regulatory compulsion. An Indian customer already has a myriad of digital payment options (UPI, debit cards, BNPL, prepaid wallets, upcoming digital rupee), together with the overflow of information on account of unregulated finfluencers.

It would be relevant to consider if the choice of card networks will really add value or lead to ‘choice fatigue’ among consumers. Customers who understand the nuances of choosing a card network already have options to consider, if they are interested in the benefits offered by a specific card network. Perhaps, the idea of interoperability in the Indian context needs to be seen from a different lens after analysing global practices. At its best, interoperability may feel “seamless”, but the process for achieving it can be quite complex, expensive and requires coordination across a range of stakeholders.

The writers are with Cyril Amarchand Mangaldass