New Delhi

The Reserve Bank of India (RBI) unveiled a groundbreaking draft regulation that grants debit, credit, and prepaid cardholders the authority to select their desired card network. This regulation marks a potential revolution in the global credit card industry, challenging the prevailing practice where card network options are predetermined through agreements between issuers and networks.

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Promoting customer choice and flexibility

The RBI's draft circular prohibits card issuers from entering into agreements that restrict them from accessing services of other card networks. The current arrangements between card networks and issuers, including banks and non-banking institutions, are deemed inadequate in promoting customer choice and availability. The proposed regulation aims to enhance flexibility and competition in the credit card market, allowing users to choose the card network that best suits their preferences and requirements.

Under the new regulations, cardholders will have the flexibility to migrate to a different payment network while keeping their existing card accounts, balances, and credit history intact. This concept of card network portability enables consumers to transfer their card accounts from one network to another, similar to switching mobile service providers while retaining the same phone number.

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Operational challenges and increased costs

While the draft regulation holds significant advantages for customers, such as decision-making authority and portability, banks may face operational challenges and increased costs. Banks will need to review existing agreements, establish new partnerships, adjust customer onboarding processes, provide additional training, and reevaluate customer profiling. The impact on the manufacturing process of banking cards is another factor that banks will need to evaluate in the coming months. With the proposed implementation date set for October 1, 2023, banks face a tight timeline of less than 90 days to implement the extensive organizational changes.

Primary Beneficiaries

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The primary beneficiaries of this new regulation are customers, as card issuers will be obligated to offer more than one card network and provide the option for customers to choose their preferred network during card issuance or even afterward. This move also opens up the potential for innovative offerings by different network providers, offering broader advantages for customers in the future.

In India, authorized card networks, including MasterCard, Visa, American Express Banking Corp, Diners Club International, and National Payments Corporation of India - RuPay, partner with banks and non-banking financial institutions for card issuance. Previously, banks had been exclusively tying up with a few dominant networks, limiting customer choice. The RBI's proposed regulation aims to eliminate such restrictions and promote a level playing field for all card networks.

India's credit card market: A Snapshot

The credit card market in India has been booming, with credit card outstanding reaching Rs 2 lakh crore, a year-on-year rise of 29.7 per cent. Banks have issued 8.65 crore credit cards as of April 2023, with monthly credit payments exceeding Rs one lakh crore. The surge in credit card usage reflects the growing purchasing power of the country. However, it is crucial to ensure responsible practices by credit card companies while issuing cards, considering the significant outstanding debt.

RuPay: Striving for dominance

RuPay, India's domestic card payment network, has been striving to gain a foothold in the credit card space, which is dominated by international networks like Visa and MasterCard. RuPay's dominance in the debit card market, capturing 65 per cent of the market share, contrasts with its minimal presence in the credit card space. The government has been promoting RuPay through initiatives such as linking credit cards to UPI and may consider further incentives to boost its adoption.

The RBI's draft regulation is expected to significantly change the credit card landscape, providing customers with greater choices and fostering competition among card networks. Stakeholders have been invited to provide their comments on the proposal, with the potential mandate expected to come into effect in October.

(With Inputs from Agencies)