In a significant development for cardholders in India, banks will now have to allow customers to select from a range of card networks, such as Visa, MasterCard, and Rupay, when obtaining debit, credit, or prepaid cards. This initiative, effective from October 1, 2023, stems from a draft circular released by the Reserve Bank of India (RBI) earlier on July 5, 2023.
What Are Card Networks?
Banks operate debit and credit cards issued to customers through a particular payment network. There are multiple card networks operating in India, such as Visa Worldwide, MasterCard Asia-Pacific, American Express, Diners Club International, and lastly India’s own home-grown Rupay, which has been developed by the National Payments Corporation of India (NPCI).
Empowering Cardholders
Now, starting October 1, 2023, customers will have the flexibility to exercise their network preference either during the card issuance process or at a later date, thus giving them more control over their financial choices. This directive from RBI is applicable to both existing and new agreements between card issuers and network service providers.
RBI noted in its circular that “(the) arrangements between card networks and card issuers are not conducive to the availability of choice for customers.” Accordingly, RBI directed card issuers to factor in the “public interest” when issuing cards.
Enhancing Customer Benefits
The move offers several advantages to customers. First, it grants them the ability to select a card network that aligns with their specific requirements. For instance, RuPay, being an indigenous card network developed by NPCI, carries lower transaction fees.
Previously, banks decided the card network primarily based on factors, such as global acceptance, customer incentives, airport lounge access, and commercial terms. With customers now having a say in this decision-making process, they can opt for the card network that aligns with their preferences.
The benefits differ with different card networks.
Recently in 2022, RBI permitted unified payments interface (UPI) applications for credit card payments, and RuPay is the sole payment service system allowed to participate in this ecosystem. This is noteworthy because when customers use UPI for making payments, merchants do not have to pay any processing fees, unlike the merchant discount rate (MDR) typically levied on card payments. So, more merchants prefer UPI payments over traditional card payments. In addition, customers also have access to an additional payment method.
