RBI Directs Banks To Offer Customers Choice Among Card Networks

The Reserve Bank of India (RBI) has asked card issuers, such as banks, not to enter into any agreement with card networks that forbid customers from availing services of other networks.

The directive comes eight months after the regulator first proposed it.

As per this direction, the card issuers will have to provide an option to their eligible customers to choose from multiple card networks at the time of issue. For existing cardholders, this option needs to be provided at the time of the next renewal.

The authorised card networks include American Express Banking Corp., Diners Club International Limited., MasterCard Asia/Pacific Pte. Limited., National Payments Corporation of India — Rupay and Visa Worldwide Pte. Limited.

Currently, card networks collaborate with banks and non-banking financial companies (NBFCs) to issue cards, which limits the choice of the customers to avail certain services of the card network of his/her choice.

“The authorised card networks tie-up with banks and non-banks for issuance of credit cards. The choice of network for a card issued to a customer is decided by the card issuer and is linked to the arrangements that the card issuers have with card networks in terms of their bilateral agreements,” said RBI.

It directed card issuers to provide an option to 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, the central bank added.

This particular direction to card issuers will be effective six months from Wednesday. However, this order will not be applicable to credit card issuers with up to 1 million outstanding cards.

Commenting on the development, Jitendra Dhaka, founder of BankSathi, said, “In the long run, these developments position RuPay as a formidable competitor to established card networks like Visa and Mastercard. With its strong domestic presence, integration with UPI and expanding global acceptance, RuPay has the potential to overshadow its competitors in the coming years, establishing itself as the preferred choice for cardholders.”

This comes weeks after the apex bank directed card networks Visa and Mastercard to halt commercial card-based business payments. The circular issued by the bank stated that some businesses with no arrangement for card transactions take payments via cards through some intermediaries. Thus, it directed the card networks to halt commercial transactions until the issuance of further notice. 

Recently, RBI’s crackdown upon fintech entities has been stricter, in terms of regulatory checks and balances. 

On Tuesday (March 05), the central bank imposed a halt on JM Financial from doing any new financial transactions. However, it refrained the existing loan accounts from being affected by the directive. 

This followed the heavy crackdown by the central bank on Paytm Payments Bank which stopped the fintech major from issuing loans or accepting cash deposits.