RBI directs card issuers to let customers choose network

NEW RULE OF THE GAME. Move to boost competition, reduce merchant discount rates

The Reserve Bank of India (RBI) has asked banks and nonbanks to let their customers decide on the credit card network. This effectively means that credit card issuers, especially those with a large customer base, will have to enter into tieups with multiple card networks.

Currently, the choice of network for a card issued to a customer is decided by the issuer (bank/nonbank) and is linked to the arrangements that it has with card networks through bilateral agreements.

NO EXCLUSIVE DEALS

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

The central bank observed that some arrangements currently existing between card networks and card issuers do not give customers a choice.

“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 Wednesday circular on ‘Arrangements with Card Networks for Issue of Credit Cards’. The directions under the aforementioned clause will be effective six months from the issue of the circular.

The clause allowing customers to choose card networks, however, is not applicable to credit issuers whose active card base does not exceed 10 lakh.

Further, the circular is not applicable to card issuers that issue credit cards on their own authorised card network.

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 is the charge recovered by the acquirer (entities that 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.

Card networks facilitate the issue of cardbased products such as credit, 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 IndiaRuPay, 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 said that the customer might find it easier to get RuPay credit cards compared with MasterCard, Visa, and Amex credit cards due to the latters’ more stringent requirements.

CREDIT CARD BASE

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

Six banks have a card base of more than 50 lakh, led by HDFC Bank with 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.