Reserve Bank of India’s guidelines on issue of cards is expected to benefit home-grown network RuPay the most, especially in the credit card space where the network has a low market share.

“Traditionally, consumer choice in cards in India has rarely been driven by the network. Unlike markets like the US, choice has been driven by the issuer and the underlying value proposition,” said Ranadurjay Talukdar, Partner and Payments Sector Leader, EY India.

“This will provide banks with much-needed encouragement to issue credit cards on UPI, as that is clearly the strongest proposition on the credit side from the Rupay network. On the debit side, bulk of the issuance volume is currently on Rupay and most PSUs issue Rupay cards by default,” he added.

Multiple choices

RBI, on Wednesday, asked card issuers not to enter into bi-lateral arrangements with card networks and issue cards across more than one card network. Effective October 1, issuers will be required to provide customers choice among multiple card networks, at the time of issue or anytime thereon.

Five networks currently operate in India, namely Visa, Mastercard, NPCI-backed RuPay, American Express and Diner’s Club.

The proposal is expected to provide customers with more choice by ending any exclusive agreements, especially by leading issuers. While currently customers are largely network agnostic and opt for cards based on their value-added benefits and the issuer, this move will prompt customers to review the advantages of each network basis their individual requirements.

In turn, networks may also have to work on improving their customer connect, industry players said, adding that opening of the market will create an even playing field and ensure networks work to improve issues of grievance redressal and transparency.

While the requirement of an additional choice will not impact RuPay’s majority in the debit card space, it will lead to more business for the network in the credit and prepaid card space, especially as it is the preferred network for PSU banks. On the other hand, Visa, which is the dominant player in credit and co-branded cards, could lose some ground as issuers look to diversify their offerings and end tie-ups.

The central bank probably wants to avoid dependence on any specific network and offer customers a choice, given that RuPay offers added benefits such as inter-operability with UPI and issue of prepaid forex cards overseas. Work for banks will increase but we don’t expect a cost impact, said a senior executive at a private sector bank. “Our customers have the flexibility to switch from one card to another as they deem fit. We have been an active issuer of RuPay cards and are amongst the issuers offering UPI on credit card facility to our customers. We are already seeing a good adoption of this facility,” said Frederick Dsouza, Business Head - Credit Card, Kotak Mahindra Bank.

RBI said that any existing agreements will have to be annulled at the time of amendment or renewal, owing to which the industry could see some co-branded partnerships falling through over the next 2-4 years as typically co-branded or other card tie-ups are for a period of 3 or 5 years, sources said.

“While this holds significant advantages for customers, granting them decision-making authority and portability, banks may face operational challenges and increased costs. They will need to review existing agreements, establish new partnerships, adjust their customer onboarding processes, plan additional training, and relook at customer profiling,” said Rajalakshmi Raghu, Head - Strategic Relationships, Manipal Technologies.

While American Express constitutes a low share for most issuers, for most private banks outstanding credit cards are nearly equally distributed between Visa and MasterCard. There is some skew towards Visa given its legacy advantage due to which a significant portion of the credit card launches in the last 5-6 years have been on the MasterCard network.

In 2021, RBI had indefinitely barred Mastercard, American Express, and Diners Club from issuing new cards due to non-compliance with local data storage norms. The curbs were lifted nearly a year later, allowing Visa and RuPay an opportunity to grow.

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