The Reserve Bank of India’s draft circular on bank tie-ups with card networks, if it goes through, is likely to have far-reaching implications for India’s payments ecosystem. In a change of rules that are proposed to kick in from October 1, the RBI has sought to bar banks and NBFCs that issue credit, debit or pre-paid cards from entering into any exclusive tie-ups with card network providers, as is the current practice. Instead, they have been asked to tie up with more than one provider.
Though the RBI has said this move is aimed at giving more choice to the customer, it also seems to be a strategic move to give the National Payments Corporation of India (NPCI)-backed RuPay a fighting chance in the market. There are many good reasons why the regulator may be keen to encourage the adoption of RuPay credit cards. In the last five years, the RBI has been battling with global card network providers such as Mastercard, Visa and American Express on compliance with its data localisation rules. When the RBI decreed in April 2018 that all payment system providers should store end-to-end transaction data relating to their Indian customers within the country in the interests of data security and access, it attracted loud rumblings of discontent from the global players. They continued to operate in violation of this rule for three years, until the RBI imposed a blanket ban on banks onboarding any new customers on Mastercard, American Express and Diner’s Club networks, after which these entities fell in line. The ban disrupted the business plans of leading Indian banks/NBFCs and the regulator is perhaps keen to avoid a repeat of this incident.
Two, thanks to pre-existing tie-ups between banks and global providers, RuPay has so far been able to make little headway in the domestic credit card market despite garnering a significant share in debit cards. NPCI, apart from processing and storing customer data wholly within India, also charges a lower fee for its services than global network service providers. Three, after the recent financial sanctions on Russia by the Western world, which barred the country from global payments systems, it is in national security interests to promote a homegrown payments system. The Unified Payments Interface (UPI) is already an unqualified success story and the RBI appears keen to leverage on it to promote RuPay credit card payments via UPI.
Despite all these advantages though, merely requiring banks and NBFCs to have multiple tie-ups with card network providers may not be enough to popularise RuPay credit cards with users. A key reason why many users prefer Mastercard/Visa or other global networks is international acceptability for their cards. The Centre and NPCI need to work at gaining similar acceptability for RuPay cards. The public also needs to be made aware of the RuPay’s ability to compete with global rivals on low costs and data privacy and security.