RBI circular on network choice seen helping RuPay grow credit card base
The RBI’s guidance on card issuance is expected to benefit the domestic RuPay network the most, particularly in the credit card space where the network has a low market share.
“Traditionally, consumer choice of cards in India has rarely been network-driven. Unlike in markets like the US, choice has been driven by issuer and core value proposition,” said Ranadurjay Talukdar, Partner and Payments segment lead, EY India.
“This will provide banks with much-needed encouragement to issue credit cards on UPI, as this is clearly the strongest offering on the credit side of the Rupay network. On the debit side, the bulk of the issuance volume is currently on Rupay and most PSUs issue cards.” Rupay by default”.
multiple options
RBI, on Wednesday, asked card issuers not to enter into two-way arrangements with card networks and to issue cards across more than one card network. From October 1, issuers will be required to offer customers a choice among multiple card networks, at the time of issuance or at any time.
Five networks are currently operating in India, namely Visa, Mastercard, NPCI-backed RuPay, American Express and Diner’s Club.
The proposal is expected to provide customers with more options by ending any exclusivity agreements, particularly by major exporters. While customers currently do not know the network and choose cards based on value-added and issuer benefits, this step will prompt customers to review the benefits of each network on the basis of their individual requirements.
In turn, networks may also have to work on improving communication with their customers, industry players said, adding that opening up the market would create a level playing field and ensure networks work to improve issues of grievance handling and transparency.
While the additional selection requirement won’t affect the majority of RuPay in the debit card space, it will result in more business for the network in the credit and prepaid card space, especially since it’s the network of choice for PSU banks. On the other hand, Visa, the dominant player in credit and co-branded cards, could lose some of its gains as issuers look to diversify their offering and end tie-ups.
Perhaps the central bank wants to avoid dependence on any specific network and offer customers a choice, given that RuPay offers additional benefits such as interoperability with UPI and issuance of prepaid forex cards abroad. A senior private sector bank executive said business at banks will increase, but we don’t expect the cost impact.
The RBI said any existing agreements should be canceled at the time of modification or renewal, which could result in the industry seeing some co-branded partnerships deteriorate over the next 2-4 years as is usually the case with co-branding or other tie-ins – sources said. Purchases are for 3 or 5 years.
While American Express makes up a low share for most issuers, credit card receivables for most private banks are roughly evenly distributed between Visa and MasterCard. There is some deviation towards Visa due to its legacy feature since a large portion of the credit cards launched in the last 5-6 years are on the MasterCard network.
In 2021, RBI indefinitely banned Mastercard, American Express, and Diners Club from issuing new cards due to non-compliance with local data warehousing standards. The restrictions were lifted after nearly a year, giving Visa and RuPay an opportunity to grow.