India Would Allow Customers To Choose Card Network

July 11, 2023
The Reserve Bank of India is considering a rule that would require banks and non-banks to issue cards with multiple card networks and allow their customers to choose which badge they want on their card.

The Reserve Bank of India (RBI) is considering a rule that would require banks and non-banks to issue cards with multiple card networks and allow their customers to choose which badge they want on their card.

Currently, it is the issuing bank that decides which card network is on the card it issues.

A draft circular issued by the RBI last Wednesday (July 5) would change that and give the customer the decision to decide whether they want to use a Visa, Mastercard, American Express, Diners Club or Rupay card.

This option may be exercised by customers either at the time of issue or at any subsequent time.

The proposal would also prohibit card issuers from entering into agreements that limit their ability to partner with other card networks. This prohibition would be effective as soon as the circular is finalised, while the requirement to enable multiple networks on cards would come into effect on October 1.

The RBI said it moved to issue the proposal after it found that existing arrangements between card networks and card issuers, including both banks and non-banks, are “not conducive” to the availability of choice for customers.

The central bank did not provide further details on why it has brought the proposal forward now or what the expected outcome would be.

The draft circular leaves other questions open too, which need to be ironed out before a rule is finalised, a payment expert told VIXIO.

For instance, the RBI may need to set out what it exactly means in terms of the choice given to the customer.

“If there is a bank issuing only Amex charge cards, should they join at least another network? Is it not in the domain of the banks' management to decide what cards they want to issue?,” Balakrishnan Mahadevan, former chief operating officer at the National Payments Corporation of India (NPCI), noted.

For many banks that are issuing only Rupay cards, it may also be a question of how would they join a Visa, Mastercard, American Express or Diners Club network if they do not meet the eligibility criteria to join those networks, Mahadevan added.

Global brands dominate card payments

India’s domestic card network called Rupay was launched in 2012 and is operated by the NPCI.

Although the domestic network accounts for a large portion of debit cards in circulation, it has not gained significant traction in the credit card segment, accounting for only a small portion of card payments.

With 651m debit cards issued, Rupay debit cards accounted for 65 percent of all debit cards in India at the beginning of 2022; however, Rupay credit cards represented less than 3 percent of total credit cards in circulation.

Even with the significant share in the number of debit cards issued, the usage of the domestic card scheme has been lagging far behind global card brands Visa and Mastercard.

In 2020, Visa accounted for nearly half (49 percent) of all card payments, followed by Mastercard, which processed just over a third (36 percent), while Rupay processed just 13 percent, according to a RBI payments study last July.

This is despite (or spite) regulatory efforts to make Rupay card payments more attractive for merchants to promote acceptance by prohibiting banks from charging the merchant discount rate (MDR) on transactions processed via the network..

By contrast, the MDR charged for other debit cards is allowed to be as high as 0.9 percent of the transaction value, or ₹1,000 ($12), whichever is lower.

A unique approach

The proposal takes a unique approach to improving competition between card networks.

In other parts of the world, policymakers have adopted options such as dual routing, requiring cards to offer a choice of two networks with which merchants can choose, specifically either Visa or Mastercard, and a domestic card network.

For example, dual routing was mandated in the US for debit card payments in 2010 and a bipartisan group of lawmakers has recently introduced legislation to establish a similar requirement for credit card payments as well.

In Australia, policymakers set the “expectation” in 2021 that all acquirers and payment facilitators that provide card acceptance services should “offer” and “promote” least-cost routing to their merchants when processing a debit card payment.

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