RBI enables cardholders to choose card networks. Enhances customer options and control over preferences in credit and debit cards.
Whether or not you use a credit card, you have probably heard the question, “Would you like to apply for a credit card?” during credit card-related phone calls. These calls can sometimes be bothersome. But, it is important to note that the number of credit card users in India is rapidly increasing.
Based on data from the Reserve Bank of India (RBI), until April 2023, banks have issued a total of 8.65 crore credit cards. The monthly credit payments have now exceeded Rs 1 lakh crore every month. Credit card payments are projected to reach Rs 1.32 lakh crore in April 2023.
Considering this growing trend of credit cards in the country, the Reserve Bank of India (RBI) has taken an important step for card holders. The RBI plans to introduce changes to the credit and debit card system.
Let’s understand what it is all about.
Currently, both credit and debit cards in the country are associated with a specific network such as Visa, MasterCard, or RuPay.
If, for any reason, a customer does not wish to use a card associated with a particular network, they have no alternative options. The RBI has proposed a solution in its recently issued circular to address this issue.
The proposal suggests that customers should be given the choice to change the network of their debit, prepaid, or credit cards.
In the proposal, the RBI states that card-issuing companies or banks should provide eligible customers with the freedom to select their desired card network from a range of available options.
Additionally, the RBI emphasises that card issuing companies or banks should not enter into any agreement or arrangement with a specific card network that restricts customers from enjoying the benefits offered by other card networks.
What is a Card Network?
The term card network refers to a communication system used by card issuers for credit card transactions. It acts as a centralised platform through which credit card transactions are authorised, processed, and settled between customers and their banks.
Card networks also play a role in negotiating transaction terms and facilitating the transfer of payments.
Some major credit card networks include Visa, Mastercard, American Express, Diners Club, and RuPay, among others. These networks provide the infrastructure and technology necessary for secure and efficient credit card transactions.
Reason Behind the Decision
The RBI has made this decision due to the observation that many banks in India have entered into exclusive, informal agreements with specific card networks to provide their services, regardless of customer preferences. For example, a few major private banks have tied up with Visa, while another exclusively serves Mastercard’s network.
The RBI recognises that such arrangements between card networks and card issuers limit the availability of choices for customers. In some cases, customers are forced to accept particular card networks, even if they prefer alternatives.
The RBI intends to promote a more customer-centric approach and ensure that customers have the freedom to choose the card network that best suits their needs.
The RBI has announced that these changes will be effective from 1st October 2023. Stakeholders are encouraged to provide feedback on the proposed changes until 4th August.
That’s it for today. We hope you’ve found this article informative. Remember to spread the word among your friends. Until we meet again, stay curious!
*The article is for information purposes only. This is not an investment advice.