RBI‘s circular on issuance of cards a win for customers, say experts

RBI‘s circular on card a win for customers, banks may bear some additional costs, say experts

The Reserve Bank of India’s (RBI) draft circular on July 5 on the issuance of debit, credit and prepaid cards will be beneficial for customers but some banks may have to bear additional operational costs, experts said.

In the circular on arrangements with card networks for the issue of debit, credit and prepaid cards, the central bank highlighted that card issuers shall issue cards across more than one card network and they should provide an option to the customers to choose any one among the multiple card networks.

This, experts said, will give customers more freedom and choice to choose the cards of their choice from the issuer and networks.

Also read: RBI issues draft circular on issuance of debit, credit and prepaid cards

A senior executive of a private sector bank, who did not wish to be named, said that this will give customers more choice to choose from.

"This is a good move for customers as they will have multiple options," said the executive.

Ranadurjay Talukdar, Partner and Payments Sector Leader, EY India, said: "The proposal by RBI is a significant move as it will bring wider choice to consumers, while also ending exclusive issuance arrangements that card networks have with leading issuers."

“Customers can have the choice to choose the credit, debit or prepaid card of their choice according to the benefits they are looking for,” said Sumana Mandal, Founder, TechnoFino, a credit and debit card advisory company.

Additionally, experts highlighted that the move to have multiple card networks on the same card may lead to some rise in operational costs for card issuers, i.e. banks.

The executive quoted above highlighted that banks and card networks will have to work on renegotiating the prices and fees involved.

"With the circular, banks and card networks may have to work on renegotiating the fees involved," said the executive.

“Banks have to pay an annual fee to card networks. Now, if they are looking at having multiple networks on the same card, they will have to pay that much annual fee which may lead to a slight rise in their operational costs,” Mandal said.

Raghunath Rudravelli, Assistant General Manager at Dhanlaxmi Bank, highlighted that the circular may lead to a rise in demand for some card issuers which provide more services.

"Take the example of RuPay. Customers can use RuPay credit cards on UPI. Like this, some cards which have additional features may have more demand than others," Rudravelli said.

What does the circular say?

The central bank in the draft circular said that the existing arrangements between card networks and card issuers i.e. banks and non-banks, are not conducive for customers.

Further, the central bank said that card issuers should not enter into any arrangement or agreement with card networks that restrain them from availing the services of other card networks.

The apex bank also said that card issuers and card networks shall ensure to adhere to the existing agreements at the time of amendment or renewal.