The Reserve Bank of India (RBI) on March 6 issued a notification directing credit card issuers to allow customers to choose between different card networks (American Express, Diners Club, Mastercard, RuPay, Visa) at the time of card issuance and allow existing cardholders to switch networks at the time of renewal if they wish to. Card issuers have six months to put in place the necessary systems and processes to enable this.
Additionally, card issuers are prohibited from entering into agreements with card networks that prevent them from issuing cards in other networks and must modify any existing agreements that promote such exclusivity.
The central bank first proposed these rules in July 2023, noting that, the choice of card network is determined by the card issuers based on their arrangement with the card networks which isn’t “conducive to the availability of choice for customers.”
Exceptions:
- Smaller card issuers: Credit card issuers that have less than 10 lakh active credit cards do not have to provide multiple network options to customers.
- American Express cards: Card issuers who issue credit cards through their card network are excluded from the new rules. Currently, only American Express fits this criteria as the Amex credit cards are issued by its network.
What remains unclear?
Although RBI has asked card issuers to offer multiple network options to customers it isn’t clear if all five authorised card networks need to be provided or only two will suffice. For example, can HDFC offer a credit card in Visa and Mastercard variants and leave out Rupay, Diners, and American Express?
Another push for RuPay?
The new RBI directive could be another way to push for the indigenous RuPay network over Visa and Mastercard which dominate the Indian market. The Indian government already has various incentive schemes and policies that favour RuPay adoption. Earlier in 2021, Visa had flagged the Indian government’s attempt to promote RuPay over other card networks to the US, terming it “not-so-subtle pressure on banks to issue” RuPay cards. Visa also complained of India’s formal policies “that appear to favour the National Payments Corporation of India (NPCI), the non-profit that runs RuPay, over other domestic and foreign electronic payments companies.”
Why would customers want to switch networks?
Credit card users are likely to benefit from the new RBI directive as it gives them the option to make UPI payments using a credit card. At present, only RuPay has this feature, giving it an edge over other card networks. However, the wider reach and the global acceptance of Visa, and other international networks make them a viable option for some customers. Some credit card users might prefer Diners or Amex because cards issued under these networks have benefits like lounge access, concierge, etc.
Why do card issuers prefer certain networks over others?
Card issuers have various reasons for preferring one network over another but the main reason is transaction charges. Merchants are charged a fee known as a merchant discount rate (MDR) when a customer pays using a credit card. This fee is distributed between the card issuer, the bank which operates a merchant’s point of sale (PoS) machine, and the card network. Issuers prefer networks that give them a bigger share of the transaction charges. At present, RuPay isn’t charging any MDR for transactions below Rs 2,000 which isn’t viable for card issuers. However, the Indian government is giving incentives to banks that push for RuPay adoption.
Update (March 11, 3:30 pm): The intro and second paragraph were edited for clarity.
Also Read
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- Amex Becomes The Last Company To Comply With RBI’s 2018 Data Localisation Norms
- What’s New In RBI’s Guidelines For Credit Cards And Debit Cards
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