How this new debit, credit card rule will benefit bank customers — explained
The introduction of a draft rule by the Reserve Bank of India (RBI) that empowers card users to select their preferred card network is indeed a significant development. This move challenges the existing practice where card network options are predetermined by agreements between issuers and networks.
If implemented, this rule would prohibit card issuers from entering into agreements that restrict them from availing the services of other card networks. This would provide card users with greater flexibility and choice in selecting the network they prefer to use for their debit, credit, and prepaid cards.
By promoting competition and consumer choice, this potential rule change could have a far-reaching impact not only in India but also serve as a pioneering model for similar developments worldwide. It signifies the RBI’s commitment to fostering a more open and competitive payment ecosystem.
The draft circular issued by the Reserve Bank of India (RBI) highlights the observation that existing arrangements between card networks and card issuers are not conducive to providing choice for customers. In line with this, the RBI has proposed that card issuers, both banks and non-banks, should offer their eligible customers the option to choose from multiple card networks.
According to the draft circular, customers would have the flexibility to exercise this choice at the time of card issuance or at any later point. This empowers customers to select the card network that best suits their preferences and requirements.
By introducing this provision, the RBI aims to promote competition and enhance customer convenience and choice in the payment card ecosystem. It seeks to ensure that customers are not limited to a single card network based on predetermined agreements, but instead have the freedom to choose among available options.
card network portability provides consumers with the ability to transfer their card accounts from one network to another, similar to the concept of switching mobile service providers while retaining the same phone number. This allows cardholders to retain their existing card accounts, balances, and credit history while transitioning to a different payment network.
By enabling card network portability, consumers are empowered to select the network that aligns best with their preferences and requirements. Factors such as rewards programs, acceptance, and customer service can influence their choice. This flexibility not only offers consumers greater control over their financial decisions but also fosters competition among credit card networks.
The introduction of card network portability can have a positive impact on the payment card industry by promoting customer-centric practices and encouraging innovation. It provides an avenue for consumers to exercise their choice and make decisions based on their individual needs and priorities.
It’s important to note that the introduction of card network portability in India is subject to the finalization and implementation of the draft circular issued by the Reserve Bank of India (RBI). Stakeholder feedback and regulatory considerations will play a role in shaping the final rules and guidelines regarding card network portability in the country.
The proposal by the Reserve Bank of India (RBI) to introduce card network portability has garnered positive feedback from industry experts. Ranadurjay Talukdar, Partner and Payments Sector Leader at EY India, considers it a significant move that will offer consumers a more comprehensive range of choices and put an end to exclusive issuance arrangements between card networks and leading issuers.
The introduction of card network portability is expected to encourage banks to issue credit cards on the Unified Payments Interface (UPI) platform, which is considered a strong proposition regarding credit offerings from the RuPay network. This move can potentially boost the adoption of UPI-based credit cards and contribute to the growth and development of the payment ecosystem in India.
Overall, the proposal by RBI is seen as a positive step towards enhancing competition, providing greater choices to consumers, and promoting innovation in the card payment industry. The feedback from stakeholders will play a crucial role in shaping the final guidelines and ensuring that the implementation of card network portability aligns with the needs and expectations of the industry and consumers.
Ranadurjay Talukdar points out that on the debit side, most debit cards issued in India are on the RuPay network, with many public sector banks issuing RuPay cards by default. However, with the introduction of card network portability, private sector banks that have exclusive arrangements with Visa or Mastercard may now need to expand their offerings to include a RuPay variant for credit cards.
This move is expected to bring more balance and competition to the credit card market, allowing consumers to have greater choice and access to different payment networks, by expanding their card offerings to include RuPay cards, private sector banks can tap into the growing popularity of RuPay and cater to the preferences of consumers who prefer this network.
Overall, the implementation of card network portability can lead to a more diverse and competitive card payment ecosystem, benefiting both consumers and banks in India.
It offers the potential for increased innovation, improved services, and a broader range of options for customers in the debit and credit card segments.
Anadurjay Talukdar highlights that while the draft circular brings advantages for customers, it may pose operational challenges and increased costs for banks. Implementing the new rule would require banks to review their existing agreements with card networks, establish new partnerships if needed, adjust their customer onboarding processes, provide additional training to staff, and reevaluate customer profiling procedures.
Additionally, banks would need to assess the impact on the manufacturing process of all banking cards. With customers having the option to choose different card networks, banks may need to produce a wider range of card variants to accommodate these preferences, which could potentially impact their card manufacturing operations.
The implementation of the new rule would require banks to make these adjustments and investments to ensure compliance and provide customers with the desired flexibility. Banks will need to carefully evaluate the operational implications and associated costs of the proposed changes while aligning their processes and infrastructure to support the portability of card networks.
Overall, while there may be challenges for banks in implementing the new rule, the potential benefits for customers and the broader goal of enhancing competition and choice in the card payment market make it an essential step towards empowering consumers and fostering a more dynamic ecosystem.
Rajalakshmi Raghu rightly points out the time constraint that banks would face in implementing the proposed changes. With an expected implementation date of October 1st, 2023, banks have less than 90 days to make the necessary organizational changes to comply with the new rule.
Given the scope and magnitude of the changes required, banks would need to act swiftly and efficiently to review their agreements, establish new partnerships, adapt their customer onboarding processes, provide training to staff, and reevaluate customer profiling procedures. These changes may involve coordination among various departments within the banks, as well as with external partners and vendors.
Meeting the implementation deadline would require banks to allocate sufficient resources, including human resources, technology infrastructure, and financial investments, to ensure a smooth transition. It would also be crucial for banks to communicate the upcoming changes to their customers and provide them with the necessary information and support during the transition.
Overall, the limited timeframe adds to the urgency for banks to initiate the required organizational changes promptly and efficiently, ensuring they are fully prepared to offer card network portability to their customers by the proposed implementation date.
Rajalakshmi Raghu highlights the potential long-term benefits for customers resulting from the proposed rule. With the requirement for card issuers to provide more than one card network and offer customers the option to choose at the issuance or later, customers will have increased flexibility and choice in selecting the card network that best suits their needs.
This move is expected to promote competition among card networks, leading to innovative offers and services for customers. With multiple card networks to choose from, customers can consider factors such as rewards programs, acceptance, customer service, and other features that align with their preferences and requirements.
While the immediate focus may be on the introduction of choice and portability, the future implications and potential benefits for customers are worth exploring. As the market evolves, different card networks may introduce new features, competitive offerings, and improved services to attract customers. This competitive landscape can ultimately lead to enhanced value propositions, better customer experiences, and more tailored financial solutions.
Therefore, customers stand to benefit from the immediate advantages of choice and portability and the potential future innovations and benefits that may emerge due to increased competition among card networks. In India, authorized card networks such as MasterCard, Visa, American Express Banking Corp, Diners Club International, and National Payments Corporation of India (NPCI) – Rupay collaborate with banks and non-banking financial companies (NBFCs) to facilitate the issuance of cards. These networks provide the infrastructure and payment processing capabilities necessary for transactions conducted through their cards.
MasterCard and Visa are widely recognized and accepted globally, offering various credit and debit card products. American Express and Diners Club International are known for their premium card offerings and cater to specific customer segments. Rupay, operated by NPCI, is a domestic card network that provides an alternative to international card networks and focuses on promoting digital payments within India.
Banks and NBFCs form partnerships with these authorized card networks to offer their customers various card options that suit different preferences and requirements. These networks play a crucial role in enabling secure and convenient domestic and international transactions through their card products.
