With the modification of credit card regulations, the Reserve Bank of India has prioritized the needs of the consumer. The bank regulator prohibited card issuers on Wednesday from making any agreements with card networks that would prevent them from using the services of other card networks. According to the RBI, credit card issuers, whether they are banks or non-banking financial organizations, would have to start offering their clients the choice to apply for or renew their cards using one of four card networks: Visa, Mastercard, Amex, or RuPay.
The current cardholders may switch to a new network during the renewal process in accordance with the new regulations. Nevertheless, as of right now, these rules are limited to credit card companies that have issued more than 10 lakh cards.
According to the RBI, card issuers are not permitted to sign any contracts with card networks that prevent them from using the services those networks have to offer.
For the purpose of issuing credit cards, the authorized card networks collaborate with banks and non-banks. The RBI stated in its circular that "the card issuer (bank or non-bank) selects the network for a customer's card and that this decision is related to the arrangements that the card issuers have with card networks in terms of their bilateral agreements."
The RBI saw that customers' options were being limited by the current agreements between card networks and issuers. In response, the RBI issued this directive.
"The RBI's latest directives represent a major step in the direction of increasing customer choice and encouraging competition among card networks. This calculated action, which mandates that issuers provide their clients with an option of card networks, not only democratizes the decision process but also adds a level of flexibility never seen in the sector. As legal experts, we are aware of the possible ramifications for networks and card issuers alike. These parties will need to negotiate this new regulatory environment while paying close attention to operational and compliance changes. This policy highlights the RBI's dedication to establishing a payment system that is more competitive and inclusive, reflecting the larger goals of financial inclusion and the encouragement of a more vibrant financial services industry," said Nilesh Tribhuvann, Managing Partner, White & Brief - Advocates & Solicitors.
"Following the new rule, customers registering for new credit cards are no longer limited to utilizing the network that the issuer likes; instead, they can select which network, like Visa or Mastercard, they wish to use."This implies that individuals have the option to select a network that best meets their needs or offers higher rewards. Similarly, customers can now transfer to a different network that better meets their needs if their present credit card is about to expire. They can switch to an Amex card during renewal if they have been using a Visa card and have discovered that the Amex network offers new benefits," explained Adhil Shetty, CEO of Bankbazaar.
"The RBI has destroyed the exclusive agreements that the larger card issuer banks had used to keep the older card network providers captive. This implies that the card holder is no longer at the mercy of the bank and can decide for himself which network's card to be issued. It goes without saying that the bank and that network should have an agreement. Rupay card rollout will happen more quickly as a result of this action because the RBI is leveling the playing field," said Jayesh H, Co-founder, Juris Corp Advocates and Solicitors.
There are roughly 13 card-issuing banks with more than 10 lakh cards and 22 banks with less than that, according to data that is available through January 2024. It's noteworthy that the top four banks alone account for 70% of all cards, with those 13 institutions accounting for 92% of all cards.
In accordance with RBI criteria, the following card networks are available in India with authorization: American Express Banking Corp., Diners Club International Ltd., Visa Worldwide Pte. Limited, MasterCard Asia/Pacific Pte. Ltd., National Payments Corporation of India - Rupay.
