A two-page draft circular from the Reserve Bank of India has executives in India's cards ecosystem confused. These executives are now working hard to figure out possible motivations, impact, and how exactly the proposed changes will play out.
Published on Wednesday evening, the draft circular proposes changes to commercial relationships between card issuers—banks and non-banks—and card networks, such as Mastercard, Visa or RuPay. In a nutshell, the draft rules would prohibit exclusive arrangements between a card issuer and a network and instead grant customers the choice to switch card networks at will, if they are eligible.
The proposed changes will be applicable to credit, debit, and pre-paid cards.
Following audits of card networks, the RBI found that some card networks had entered into exclusive arrangements with banks, according to an industry executive familiar with the developments. Such agreements included incentives for issuing a pre-determined number of cards on a certain network, this person added.
Most major card networks in the country have similar arrangements with banks, a senior private banker said on the condition of anonymity. The changes have therefore seemingly been proposed as a way to expand customer options.
"On a review, it is observed that arrangements existing between card networks and card issuers (banks and non-banks) are not conducive to the availability of choice for customers," the RBI stated in its draft circular.
But customers also don't typically care much for the card network they're on as opposed to the issuer for the card itself, a second private banker said on the condition of anonymity. Only 5–10% of the customers would even make the choice of selecting a network in addition to the specific card even when the rules are implemented, this banker added.
To their credit, Visa and Mastercard are so ubiquitous that customers can't really differentiate between them, a third private banker said, requesting anonymity.
Tizzy-ing Motivation
While curbing exclusivity is one part of the motivation highlighted by stakeholders, other reasons include giving a fillip to RuPay cards, furthering portability in the payments ecosystem and notching up competition between card networks.
The charges levied by card network companies on banks are almost fixed and it's one way traffic, the second private banker quoted earlier said.
Allowing customers to pick and switch card networks by choice will also compel networks to work with issuers on offering customers the best proposition, the second private banker said.
There has also been a clear surge in demand for RuPay cards with credit card on UPI going live, according to the third private banker mentioned above. The requirement to offer cards across multiple networks could also push the adoption of RuPay further, this banker added.
The regulator could have also felt that pre-existing commercial arrangements with other card networks may be hampering the adoption of RuPay despite the elevated demand, the third private banker said.
At the same time, all three private bankers mentioned above said they don't expect customers to move networks in a herd. Even in existing card upgrade campaigns, not a lot of people opt-in to make the switch to other cards or networks, the second private banker mentioned above said.
For now, India's card payments ecosystem appears to be scrambling to gauge the motivations behind and the full impact of the RBI's proposed changes. The central bank has also invited stakeholder comments on the draft, which are to be submitted by Aug. 4.
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