The Reserve Bank of India’s New Circular Promotes Portability of Credit and Debit Cards
Currently while applying for a credit, debit or prepaid card, we do not get to select the network provider as the card issuer i.e. banks and non-banking financial companies, handpicks that for us.
The Reserve Bank of India (RBI) on July 5, 2023, has proposed a draft rule that permits credit, debit, and prepaid card users to choose their card network. This is aimed at ending the dominance of a few large players in the card sector.
In a draft rule proposed on July 5, the RBI allows the customers to pick any one among the various card networks according to their choice. It also empowers customers to change their existing card accounts from one payment network to another without altering the account balance or credit history. Due to this card issuers cannot be part of any agreement with card networks that prevents them from issuing cards of other card network providers. The RBI noted, “It is observed that arrangements existing between card networks and card issuers are not conducive to the availability of choice for customers”.
When and how can customers port their cards?
The RBI has solicited stakeholders’ feedback on the draft circular till August 4 and it will be implemented from October 1, 2023.
According to RBI guidelines, as soon as the new rules are enforced customers can opt for card network portability either at the time of issue or later. After the circular is implemented, all the new cards as well as existing card agreements will imperatively have to be amended at the time of issue or renewal respectively.
Significance of implementing the new rules
- Customers will be the main beneficiary: The new RBI circular would largely benefit the customers, considering they can avail innovative offers extended by the different card networks which will give them more control over their financial choices.
- Growth of Rupay: India’s home-grown payment network Rupay is likely to gain an edge as it is currently the only network offering UPI services on credit cards. With the RBI rule providing more choice to customers it is believed they will look forward to using credit cards via UPI. This will go a long way to eliminate the dominance of international card networks in India.
- Competition in the card sector will improve services: The new provisions aim to promote a healthy competition in the card sector which can result in enhanced customer service, better reward programs and overall improvement across the industry.
- Surge in credit card usage: Credit card usage has seen a dramatic upsurge post-pandemic, due to ease of payments without any additional fee. As per RBI data, credit card outstanding has risen 29.7% in FY23 and banks have supplied 8.65 crore credit cards as of April, 2023. In this scenario, introduction of consumer preference in choosing card networks can stir up the segment and boost financial expansion.
Challenges faced due to the new RBI circular
While the new circular proves extremely advantageous for customers, the banks are likely to face operational challenges. The banks will have a tight timeline of less than 90 days with the proposed implementation date of October 1.They will require additional manpower and organisational changes with increased cost.
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