RBI directs banks to provide customers with options for multiple card networks

The Reserve Bank of India (RBI) on Wednesday issued directions to banks for giving options to customers to choose from multiple card networks.

The directions do not apply to card issuers who issue credit cards on their own authorised card networks. Moreover, the directions do not apply to credit card issuers with the number of active cards issued by them being 10 lakh or less in number. The directions will come into effect beginning September 6, 2024.

"The authorised card networks tie up with banks/non-banks for issuance of credit cards. The choice of network for a card issued to a customer is decided by the card issuer (bank/non-bank) and is linked to the arrangements that the card issuers have with card networks in terms of their bilateral agreements," says RBI in a statement.

The decision has been taken after the apex bank observed that some arrangements "existing between card networks and card issuers are not conducive to the availability of choice for customers."

According to the new directions, card issuers shall not enter into any arrangement or agreement with card networks that restrains them from availing of the services of other card networks. In addition to this, the apex bank says that the card issuers shall provide an option to their eligible customers to choose from multiple card networks at the time of issue. "For existing cardholders, this option may be provided at the time of the next renewal," says RBI.

The directions apply to authorized card networks such as American Express Banking Corp, Diners Club International Ltd, MasterCard Asia Pacific Pte Ltd, National Payments Corporation of India-Rupay, and Visa Worldwide Pte Limited.

Notably, in July 2023, the apex bank via a draft circular sought feedback from various stakeholders regarding this. The apex bank also mandated card issuers (banks/non-banks) to issue cards on more than one card network along with providing customers the facility to choose any one among the multiple card networks. It also restrained card issuers from entering into agreements that limit their ability to tie up with other card networks.

Notably, in another development, the apex bank on Tuesday ordered mortgage lender JM Financial Products Ltd (JMFPL) to "cease and desist" from doing any form of financing against shares and debentures, including sanction and disbursal of loans against initial public offering (IPO) of shares as well as against subscription to debentures. The banking regulator said that "apart from being in violation of regulatory guidelines," there are serious concerns about governance issues in JM Financial Products, which are detrimental to the interest of the customers.

According to the banking regulator, the action is necessitated due to certain serious deficiencies observed regarding loans sanctioned by the company for IPO financing as well as NCD (non-convertible debentures) subscriptions.