In a significant move aimed at empowering consumers and fostering a more competitive credit card industry, the Reserve Bank of India (RBI) has issued a directive prohibiting credit card issuers from entering into restrictive agreements with card networks. This directive, set to take effect in six months, opens the door for customers to choose from various card networks, such as Visa, Mastercard, and others, during credit card issuance. In this explainer, we delve into the key aspects of this game-changing directive, its implications for customers and industry players, and the vision behind RBI’s commitment to promoting a fair and inclusive financial system.
What is the recent directive from the RBI regarding credit card issuers?
The RBI has issued a directive stating that credit card issuers are not allowed to enter into any arrangement or agreement with card networks that restrict customers from using services of other networks.
How does this directive impact customers?
This directive is beneficial for customers as it enables them to choose from various card networks, such as Visa, Mastercard, and others, at the time of credit card issuance. It promotes a culture of choice and empowerment for customers.
What does the RBI aim to achieve with this directive?
The RBI aims to foster a more consumer-centric approach in the credit card industry. By ensuring the availability of multiple card networks for customers, the RBI emphasizes a commitment to customer choice, healthy competition, and innovation within the market.
When will this directive come into effect?
The directive is scheduled to be effective six months from its issuance, starting from September 6. Both card issuers and networks are obligated to adhere to these requirements within existing agreements, upon amendment or renewal, as well as in new agreements.
How does the decision on which network to use for a customer’s card get determined?
As per RBI guidelines, authorized card networks collaborate with both banks and non-bank entities to issue credit cards. The decision on which network to use for a customer’s card is determined by the card issuer, be it a bank or a non-bank institution, based on agreements between issuers and card networks.
Are there any exemptions to these directives?
Yes, the directives do not extend to credit card issuers with fewer than 10 lakh active cards. Additionally, these regulations do not apply to credit card issuers operating on their own authorized card network.
How do experts and industry leaders view this directive?
Industry experts and banks have welcomed the directive, considering it a significant milestone in promoting a consumer-centric approach. It is seen as a positive step toward fostering healthy competition, innovation, and a transparent, customer-friendly credit card ecosystem.
What opportunities and challenges does this directive present for banks and card issuers?
While adjustments may be required, this directive offers an opportunity for banks and card issuers to strengthen customer relationships and enhance their competitive edge. It signals a shift towards a more dynamic and competitive landscape, encouraging innovation and differentiation in services to attract and retain partnerships in the evolving market.
