RBI's New Credit Card Guidelines Ensure User Flexibility, Say Experts
Presently, the selection of the network for a particular card is determined by the issuer, based on agreements with card networks.
The Reserve Bank of India (RBI) has recently issued guidelines regarding the association of authorised card networks with banks and non-banking institutions for the issuance of credit cards. The RBI has reviewed some existing arrangements between card networks and issuers and found them inadequate in providing customers with sufficient choices. Presently, the selection of the network for a particular card is determined by the issuer, based on agreements with card networks.
“This move provides more options for customers to select the card network of their choice among various options like Visa, MasterCard, Rupay, etc. Increased competition among networks is anticipated to bring in more efficiency and customer benefits,” said Jyoti Prakash Gadia, Managing Director at Resurgent India.
According to the notification, card issuers are now permitted to choose services from multiple card networks and cannot be restrained from doing so by any arrangement or agreement with a particular card network. Additionally, card issuers must offer their eligible customers the option to choose from multiple card networks at the time of issue. Existing cardholders must be offered this option at the time of the next renewal.
“The authorised card networks collaborate with banks or non-banks for the issuance of credit cards. The choice of network for a card issued to a customer is decided by the card issuer (bank or non-bank) and is linked to the arrangements that the card issuers have with card networks in terms of their bilateral agreements,” the RBI stated in a notification.
"This move provides customers with options such as choosing their billing cycle. The guidelines ensure that customers have more flexibility in using their cards,” said Ashish Goyal, Co-founder and Chief Financial Officer (CFO) at Fibe.
The RBI specified that American Express, Diners Club, MasterCard, National Payments Corporation of India - Rupay, and Visa are the authorised card networks.
The central bank directed card issuers and card networks to adhere to the aforementioned requirements in existing agreements or renewals as well as fresh agreements.
"While the immediate focus is on third-party service providers, companies like Visa and Mastercard might be indirectly affected. Reduced P2P transactions using their networks could lead to a dip in transaction volume. These entities must navigate the new rules, which could involve restructuring their fee models and transaction processes to comply with the RBI's directives," said Raj Khosla, Founder and Managing Director of MyMoneyMantra.
The recent circular issued by the central bank stated that credit card issuers with less than 10 lakh active cards issued need not provide customers with multiple card network options at the time of issue.
“A need was felt by RBI for the changes to provide better choices and options to the customers while preventing restrictive trade practices if any on the part of issuers or networks. The entire credit or debit cards ecosystem is expected to benefit from this opening up and transparency. This also exhibits the proactive approach of RBI to the fundamental need for customer-centricity,” added Gadia from Resurgent India.
This rule will be effective six months from the date of the circular. Additionally, the central bank clarified that credit cards issued on the authorised card network are exempt from these rules.
“The recent release is more of a clarification on the old guideline, it helps distinguish the marketing activities and banking facilities. In terms of data security, it ensures that the information strictly remains with the intended parties. It is a step that demarcates the duties of the parties involved and gives better clarity to customers. For the industry as a whole, it will help in creating a robust card network system with multiple options reducing the system risk of relying on a handful of players,” added Goyal from Fibe."
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