In a circular dated March 6, the RBI enforced regulations prohibiting exclusive arrangements between card issuers and networks.
Credit card rules: From tomorrow, i.e. September 6, 2024, credit card holders will have the freedom and flexibility to choose their card network. From now on, credit card users can choose their choice of card network from the available ones --- Visa, MasterCard, RuPay -- while applying for a new credit card or renewing the existing one.
This initiative was put in place after the Reserve Bank of India introduced guidelines to enhance customer experience and promote competition in the digital payments landscape. Before this, banks and non-bank card issuers used to engage in partnerships with a single card network for credit cards, limiting customers' choices in selecting their preferred card network.
In a circular dated March 6, the RBI enforced regulations prohibiting exclusive arrangements between card issuers and networks. This new mandate grants customers the liberty to choose their desired card network. The RBI emphasized in its circular that card issuers are mandated to offer eligible customers the option to select their preferred card network when acquiring a new card or at any point thereafter.
"Card issuers shall provide an option to their eligible customers to choose any one among the multiple card networks. This option may be exercised by customers either at the time of issue or at any subsequent time," RBI had stated in its draft circular.
The above condition does not apply to credit card issuers with 10 lakh or less active cards. This circular specifically excludes card issuers that distribute credit cards using their own authorized card network.
Card networks
Card networks, also known as payment networks, play a crucial role in enabling the issuance and processing of card-based products such as credit cards, debit cards, and prepaid cards. These networks serve as the infrastructure that facilitates transactions between merchants, cardholders, and card issuers, ensuring smooth and secure payments.
In India, there are five authorised card networks that operate within the payment ecosystem. These include American Express Banking Corp., Diners Club International Ltd., MasterCard Asia/Pacific Pte. Ltd., National Payments Corporation of India-Rupay, and Visa Worldwide Pte. Ltd. These networks play a significant role in enabling electronic transactions and promoting digital payments across the country.
Points to note
> RBI's Initiative: The Reserve Bank of India (RBI) has introduced guidelines with the objective of promoting a more democratic environment within the credit card market. These guidelines are intended to encourage competition among different card networks.
> Customer Choice: In the past, banks were responsible for choosing the card network assigned to customers. However, there has been a shift, allowing customers to now have the liberty to select their desired network based on their personal needs and preferences.
> Exemption for American Express: An exception to the RBI's requirements has been made for American Express, which operates its own independent network. American Express is not required to follow the guidelines imposed by the RBI.
> Implementation: Various banks, such as Bank of Baroda and YES Bank, have already put into practice the new guidelines set by the RBI. These banks have taken steps to comply with the updated regulations.
> Benefits for Cardholders: Opting for a particular card network can bring several advantages for cardholders. These benefits include broader acceptance of the card, access to exclusive offers, and increased convenience in performing transactions.
Credit card base
A report published by Motilal Oswal Financial Services in June 2024 revealed that the credit card base experienced a substantial 18% year-on-year growth, reaching an impressive total of 103 million by the end of May 2024. Notably, HDFC Bank emerged as the top contender in adding new cards, while Kotak Mahindra Bank faced a significant decline due to regulatory restrictions imposed by the Reserve Bank of India (RBI). Concurrently, the overall credit card spendings displayed a notable 17% increase, totaling Rs. 1.65 lakh crore.
Moreover, the utilization of credit cards on the Unified Payments Interface (UPI) platform has exhibited a consistent upward trend, with a remarkable 35% annual growth rate observed since May 2024. The total expenditure via UPI for credit card transactions amounted to a substantial Rs. 20.3 lakh crore. Notably, UPI has secured a dominant market share of 86% in the financial year 2023.
