Diversification of credit card networks in India

INTRODUCTION

In a recent bid to provide the users with an array of choice, the Reserve Bank of India (RBI) which is the apex bank in the country responsible for providing with guidelines and regulations for other banks in the country has issued a circular whereby the banks shall provide its customer with the choice among multiple card networks, at the time of issue or anytime thereon.

At present there are 5 network operators in India such as Visa, Mastercard, NPCI-backed RuPay, American Express and Diner’s Club.

THE CHANGE

In this notification, which was followed by a draft circular issued in July last year, RBI has directed banks to provide an option to their customers to choose from multiple card networks at the time of issuance and renewal of cards and that the banks shall not be permitted to enter into any exclusive agreement to issue credit cards. As per the guidelines, the customers are required to be provided with a minimum of 2 options of network operators.

This notification is however not applicable to banks and financial entities issuing credit card having 1 million or less than active card users and those banks and financial entities who issue credit cards through their own authorised card network.

THE BENEFIT

The revised guidelines will provide the present and future customers with higher choices. At present, the current customers have a narrower bouquet of networks available to them, primarily because of card issuers’ tie-ups with a single card network. But now, customers don’t have to stick with a network they don’t like.

This will provide added benefit to the customers as some of the merchants don’t accept cards affiliated to a particular network. For example, popular television website Netflix doesn’t accept RuPay cards for subscription payments in India and only accepts international card networks like Visa, Mastercard, and others. Moreover, a card network may give you unlimited access to luxurious airport lounges or 10X welcome reward points, while others may not. Therefore, the customers may want to opt for a network that has wider acceptance and better benefits. However, the option is available provided the issuing bank has an agreement with the network provider.

The implications of the guidelines will also benefit the customers wherein networks may also have to work on improving their customer connect, as this will create an even playing field and ensure networks work to improve issues of grievance redressal and transparency.

At present, Visa and Master Cards have exclusive tie-ups with Indian and global banks to maintain their exclusivity.  In 2020, market share of Visa and Mastercard stood at 49% and 36%, respectively while homegrown brand retained 13% of the market.

However, it is noticed that the guidelines will have little impact on the growth of India’s homegrown debit/credit card “RuPay” as it will lead to more business for the network in the credit and prepaid card space, especially as it is the preferred network for public sector undertaking (PSU) banks. On the other hand, Visa, which is the dominant player in credit and co-branded cards, could lose some ground as issuers look to diversify their offerings and end tie-ups.

Conclusion:

It is observed that while this will provide significant advantages to the customers, providing them with greater choices and higher decision-making authority with the accessibility of portability at the time of issuance or renewal, however, this notification shall not make it easier for the banks as banks may face operational challenges and increased costs. They will be required to revisit their existing partnership, and forge new partnerships, review existing agreements, accommodate their existing and new customers to the new onboarding processes, manage the system for the customers and plan additional training by relooking at customer profiles. This indeed will be time-consuming and challenging for the banks. However, it is seen that the advantages overweight the hurdles creating a wider platform for its customers. 

Bosky Tanmay Gokani Bosky Tanmay Gokani

Bosky Tanmay Gokani

Legal Advisor
Bosky Gokani, a qualified Indian lawyer, is currently based in Shanghai.
Veronica Gianola Veronica Gianola

Veronica Gianola

Senior Associate
Veronica Gianola, an accomplished Italian lawyer, is a member of the Milan Bar Association.

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