The Reserve Bank of India has put the consumers on the top with the change in the credit card rules. On Wednesday, the bank regulator barred card issuers from entering into any arrangement with card networks that would stop them from availing services of other card networks. The RBI said that from 6 September, both banks and non-banking financial institutions issuing credit cards must offer customers the option to select from multiple card networks -- RuPay, Amex, Mastercard, or Visa -- at the time of issuance or renewal.
As per the new rules, the existing cardholders can switch to new networks during the renewal process. However, these regulations only apply to credit card issuers with more than 10 lakh cards as of now.
The RBI specified that card issuers are not allowed to enter into any agreements with card networks that restrict them from accessing services offered by other card networks.
“The authorised card networks tie-up with banks / non-banks for issuance of credit cards. The choice of network for a card issued to a customer is decided by the card issuer (bank / non-bank) and is linked to the arrangements that the card issuers have with card networks in terms of their bilateral agreements,” the RBI said in its circular.
This directive is a response to the RBI's observation that existing arrangements between card networks and issuers were limiting options for customers.
"The recent directives issued by the RBI is a significant shift towards enhancing consumer choice and fostering competition among card networks. This strategic move, requiring issuers to offer a choice of card networks to their customers, not only democratises the selection process but also introduces a layer of flexibility previously unseen in the industry. As legal professionals, we recognise the potential implications for both card issuers and networks, which will need to navigate this new regulatory landscape with careful consideration to compliance and operational adjustments. This policy underscores the RBI's commitment to ensuring a more inclusive and competitive payment system, reflecting broader objectives of financial inclusion and the promotion of a more dynamic financial services sector," said Nilesh Tribhuvann, Managing Partner, White & Brief - Advocates & Solicitors.
"After the new directive, a customer who is applying for a new credit card can now choose which network they want to use, such as Visa or Mastercard, rather than being restricted to using the network the issuer prefers. "This means they can choose a network that may have better rewards or benefits that suit their needs. Similarly, if a customer's current credit card is up for renewal, they can now switch to a different network that better suits their needs. If they have been using a Visa card but have found that new rewards are offered with the Amex network, they can switch to an Amex card during renewal," explained Adhil Shetty, CEO of Bankbazaar.
"What RBI has done is demolish exclusive arrangements by which the older card network operators had locked in the big card issuing banks. This means the card holder can now choose which network’s card should be issued to him and not leave it to the bank. Needless to add, the bank should have an arrangement with that network. This move will result in faster roll out of Rupay cards as the RBI move in a way levels the playing field," said Jayesh H, Co-founder, Juris Corp Advocates and Solicitors.
As per data available till January 2024, there are about 13 card-issuing banks with more than 10 lakh cards and 22 banks with less than that. Significantly, those 13 banks account for 92 per cent for all cards, and the top four alone account for 70 per cent.
As per RBI guidelines, the authorised card networks available in India are: Visa Worldwide Pte. Limited, MasterCard Asia/ Pacific Pte. Ltd, National Payments Corporation of India–Rupay, American Express Banking Corp. and Diners Club International Ltd.