RBI Initiates Customer-Centric Reforms in Credit Card Issuance

 

March 6, 2024

In a significant move towards promoting customer choice and enhancing competition, the Reserve Bank of India (RBI) has issued a circular, RBI/2023-24/131, outlining reforms in arrangements with card networks for the issuance of credit cards. Addressed to the Chairman, Managing Director, and Chief Executive Officer of Authorized Payment System Providers, including banks and non-banks, the directive aims to reshape the credit card landscape for the benefit of consumers.

Observations Prompt Reform

Upon thorough review, the RBI identified certain arrangements between card networks and issuers that hindered customer choice. These findings prompted the central bank to exercise its powers under the Payment and Settlement Systems Act, 2007.

Key Directives Issued by RBI

In the circular, the RBI directs card issuers to refrain from entering into agreements with card networks that restrict them from utilizing services from other networks. Additionally, the circular mandates that card issuers provide eligible customers with the option to choose from multiple card networks at the time of issuance. Existing cardholders are to be offered this choice during the renewal process.

Defining Authorized Card Networks

The circular outlines the authorized card networks, including American Express Banking Corp., Diners Club International Ltd., MasterCard Asia/Pacific Pte. Ltd., National Payments Corporation of India–Rupay, and Visa Worldwide Pte. Limited.

Adherence to Directives

Both card issuers and card networks are instructed to adhere to the outlined requirements in existing agreements during amendment or renewal and in fresh agreements.

Exclusions and Effective Date

The directives exempt credit card issuers with 10 lakh or fewer active cards. Furthermore, card issuers who issue credit cards on their own authorized card network are excluded from the applicability of the circular. The directions specified in para 3(b) are set to be effective six months from the date of the circular.

This initiative by the RBI reflects a strategic effort to create a more dynamic and consumer-friendly credit card environment, emphasizing the importance of choice and competition.