Banks seek clarification on RBI's credit card network choice guidelines

The Reserve Bank of India's directive, which will go into effect in September, requires banks and non-banking financial companies to provide customers options to choose multiple card networks

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Several banks have sought clarity from the Reserve Bank of India regarding the implementation of guidelines issued on March 6, which mandate offering customers the option to choose from multiple card networks for credit cards, according to a report by The Economic Times (ET).

The Reserve Bank of India's directive requires banks and non-banking financial companies to provide this choice both at the time of issuance and renewal. This directive will take effect from September 6, 2024.

One suggestion is that the guidelines should apply prospectively, meaning new credit card customers would choose their preferred network while existing customers would continue with their current network until renewal.

Banks, however, are also concerned that implementing these guidelines during renewals could disrupt business operations. Existing cardholders have been provided offers based on customer profiles, co-branding arrangements, and specific pricing benefits.

These guidelines require card issuers to provide this choice both during the initial issuance and at the time of renewals. However, banks are unsure whether this option needs to be extended to all existing customers or only at renewal time.

What were the Reserve Bank of India's directives on credit card networks?

The guidelines were introduced to ensure customer choice and prevent exclusive agreements between card issuers and networks, as the Reserve Bank observed that some existing arrangements were not conducive to customer choice and directed card issuers to avoid them.

As per the new guidelines, card issuers and networks will be prohibited from entering into any agreement that restricts customers from using other card networks.

Card issuers must provide an option to their eligible customers to choose from multiple card networks, such as Diners Club International, MasterCard, NPCI-Rupay, and Visa, at the time of issuance. For existing cardholders, this choice may be provided during the renewal process.

The guidelines apply to card issuers with more than 1 million active credit cards. Major issuers like HDFC Bank, SBI Card, ICICI Bank, and Axis Bank fall under this category. The norms exclude issuers like American Express, which operate on their own authorised networks.

The Reserve Bank of India circular, however, did not clarify whether the norms would apply to co-branded cards, which are often offered on a single platform.

Indian Banks' Association to discuss the matter

The Indian Banks' Association will discuss the issue to develop a unified approach, ET said. Long-term contracts with co-brand partners and the impact on fees and other facilities for credit card holders are complicating factors that need to be considered.

The total number of credit cards issued by banks in India surpassed 100 million in February 2024, with a significant addition of 1.1 million cards from the previous month.