The Reserve Bank of India (RBI) has issued new directives aimed at enhancing consumer choice and promoting competition within the credit card market. These directives, rooted in the powers conferred by Section 18 and Section 10(2) of the Payment and Settlement Systems Act, 2007, signify a pivotal shift in how credit card issuers and card networks will operate moving forward.
Historically, the relationship between card issuers (banks and non-banks) and card networks has been governed by bilateral agreements, which often restricted issuers to single network partnerships. This restriction limited the choices available to consumers and potentially stifled competition among card networks. The RBI, upon review, observed that such exclusive arrangements were not conducive to the availability of choice for customers and acted to rectify this.
Under the new guidelines, card issuers are now prohibited from entering into any arrangements with card networks that would prevent them from availing services of other networks. This means that issuers cannot sign exclusive agreements with specific networks, which has been a common practice. More importantly, the directive mandates that card issuers provide their customers with the option to choose from multiple card networks at the time of card issuance. For existing cardholders, this choice should be offered at the time of their next card renewal.
The implications of these changes are significant. They are expected to foster a more competitive environment that could lead to better service offerings and potentially lower costs for consumers. Card networks such as American Express, Diners Club International, MasterCard, the National Payments Corporation of India’s RuPay, and Visa will need to adapt to this new, more competitive landscape.
However, there are exceptions to these directives. Credit card issuers who have fewer than 10 lakh active cards issued are exempt from these requirements, allowing smaller players some breathing room. Furthermore, issuers who operate their own authorized card networks, such as banks that have proprietary networks, are also excluded from the applicability of this circular.
The RBI has set a timeline for these new directives to take effect, providing a six-month window from the date of the circular for card issuers and networks to align their operations with the new regulations. This transition period is critical as it gives both issuers and networks adequate time to amend existing agreements and draft new ones that comply with the updated regulatory framework.
These measures by the RBI underscore its commitment to ensuring fair practices in the financial ecosystem while enhancing consumer rights. By breaking down monopolistic barriers and encouraging a free choice of card networks, the RBI is paving the way for a more inclusive and competitive credit card market in India.
