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The Reserve Bank of India (RBI) has made a “bold” move to reduce the dominance of Visa and Mastercard, by introducing a ban on exclusive deals between issuers and networks.
Last week, the RBI published a circular that will lead to a ban on exclusive arrangements between credit card issuers and networks such as Visa and Mastercard.
The ban, which is set to come into force on September 6, 2024, will apply to both bank and non-bank issuers of credit cards, and will apply to all authorised credit card networks.
The only exemptions are for issuers that have fewer than 1m cards in circulation, and in cases where an issuer offers a card on its own network (as is often, but not always the case, with American Express).
The RBI said the ban was developed following a regulatory review, launched in July 2023, which found that these arrangements undermine competition and consumer choice.
“It is observed that some arrangements existing between card networks and card issuers are not conducive to the availability of choice for customers,” said the RBI.
In addition to Visa and Mastercard, the other networks that will come under the regulation are Amex, Diners Club International and RuPay, India’s low-cost, domestic network.
The circular adds that “card issuers shall provide an option to their eligible customers to choose from multiple card networks at the time of issue".
“For existing cardholders, this option may be provided at the time of the next renewal.”
In a statement shared with Vixio, Mastercard said it has seen the RBI's circular and "supports the regulator’s efforts at enhancing choice for cardholders."
How will it work in practice?
In effect, the circular means that each credit card offered by each issuer must be offered across a range of networks rather than just one network, as is currently the case.
It remains unclear how the RBI will force issuers to comply with this rule, given that certain credit cards can only be issued on specific networks.
The most obvious examples being Diners Club International and Amex credit cards, which give cardholders access to exclusive offers provided by the networks themselves. Other issuers will also offer exclusive rewards which may not easily carry over to other arrangements.
RuPay, likewise, forms both a network and a specific credit card offering in and of itself.
For example, RuPay is the only network that also gives cardholders the ability to spend via the UPI network.
This means that a RuPay UPI credit card, such as the one offered by HDFC Bank, can be used at any of India’s 70m merchants who accept UPI.
Merchants have complained about the higher fees they must pay when accepting UPI credit card transactions of more than INR2,000 ($24), but these concerns may not be top of mind for consumers.
Typically, consumers base their choice of credit card on the benefits offered by the card and the acceptance of the network among merchants.
For the consumer, there is therefore little reason to choose Visa over Mastercard or vice versa, for example.
The acceptance of both networks is almost identical among merchants, and the benefits offered by a credit card on either network will depend on the issuer, not the network.
For these reasons, Balakrishnan Mahadevan, former COO of the National Payments Corporation of India (NPCI), called the circular “unnecessary” and said it has left many “unanswered questions”.
Nonetheless, it is clear that by mandating a choice of networks prior to issuance of a new card, the RBI is maximising RuPay’s chances of gaining market share from the international schemes.
With lower interchange fees on RuPay credit cards compared with those of Visa and Mastercard, issuers are likely to incentivise consumers to opt for RuPay, if given the choice.
Local processing of transactions is also likely to incentivise Indian consumers to opt for RuPay, while the absence of scheme fees will help to attract issuers to RuPay over the international schemes.
Payments nationalism
If RuPay credit cards follow a similar path to that of RuPay debit cards, India’s low-cost domestic scheme looks set to pick up market share from its international rivals, with help from the RBI circular.
After launching in 2012, RuPay had a 15 percent share of India’s debit card market in 2017, and by 2020, RuPay’s share of debit cards had risen to 60 percent.
In the credit card market, however, Visa and Mastercard still dominate, accounting for 90 percent of cards in circulation, according to RBI data in 2023.
Prakhar Tiwari, a partner at Tatvika Legal in New Delhi, said the RBI circular aligns with India’s long-standing objective of keeping financial transactions within the country.
“The Indian government has been diligently promoting RuPay cards, evident in initiatives like public-sector banks issuing RuPay debit cards by default and exclusive schemes for RuPay cards, such as those for metro fares,” he said.
“However, challenges have surfaced due to exclusive agreements private banks have entered into for their own benefits.”
Tiwari noted that the success of UPI has “emboldened” the RBI and other regulators to take on the international schemes and further promote local payment solutions.
“The move by the RBI to curtail exclusive arrangements is indeed a bold step that seeks to diminish the dominance of global players like Visa and Mastercard in favour of bolstering RuPay's position,” he said.
“As India continues to witness advancements in its digital payments ecosystem, the government's focus remains on encouraging the uptake of homegrown solutions for the benefit of both consumers and the domestic economy.”
