Several banks have reportedly approached the Reserve Bank of India (RBI) for clarification on new guidelines that require them to offer existing credit card customers a choice of payment networks such as Rupay, Visa, and MasterCard.
These guidelines, which were issued by the RBI in March, require that card issuers must offer this option during card issuance and renewals. The guidelines are set to take effect in September 2024.
Concerns Raised by Banks
According to a report by The Economic Times, the banks are seeking clarification from RBI because offering the choice of networks during renewals may cause disruptions to their business as current cardholders were provided offers based on their customer profiles, co-branding agreements, and other pricing benefits.
The report quoted a bank executive as saying that these norms should apply prospectively, which means only new credit card customers would choose their preferred network.
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Discussion with Indian Banks’ Association
The report quoted another bank executive as saying that the matter will be put before the Indian Banks’ Association (IBA) for further discussion. While some banks may have informally checked with the regulator, a common strategy will be developed through IBA deliberations. He highlighted that offering credit cards often involves bundling various other products based on financial models.
Long-term contracts with co-brand partners also need to be considered, as fees and other facilities and charges for credit card holders may change depending on financial models.
Currently, new customers have the option to choose their preferred network when they receive a new credit card. If they are unsatisfied, they can switch to a different network and close their existing account.
RBI’s Latest Guidelines
The new guidelines aim to extend this choice to all customers, ensuring greater flexibility and competition among card networks.
The RBI’s guidelines are intended to promote customer choice and prevent restrictive arrangements between card networks and card issuers.
In its March circular, the RBI observed that some existing arrangements were not facilitative to providing customers with a choice.
The regulator directed card issuers not to enter into any agreements with card networks that would restrict them from availing of other card networks’ services. Card issuers must offer their eligible customers a choice from multiple card networks at the time of issue.
Also Read: RBI Governor to Banks: Pursue Business Growth Without Unacceptable Risks
The new guidelines aim to extend this choice to all customers, ensuring greater flexibility and competition among card networks.
The RBI’s guidelines will only apply to credit card issuers with more than 10 lakh active cards and will exempt issuers who operate their own authorized card network. This threshold aims to balance regulatory oversight with the operational capacities of smaller card issuers.
As the implementation date approaches, banks are working to understand and adapt to the new requirements. The discussions at the IBA will be crucial in forming a unified approach to address the potential challenges and ensure smooth compliance with the RBI’s guidelines.
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