Credit card usage: Why RBI wants banks to let customers choose among few

Subject: Economy

Section: Monetary Policy

Concept :

At a time when the credit card business of banks is booming, the Reserve Bank of India (RBI) wants credit card issuers (banks and finance companies) to allow customers opt for their desired card network instead of forcing them to accept the favourite networks of banks.
The central bank has proposed that card issuers provide an option to their eligible customers to choose any one among the multiple card networks.
This option may be exercised by customers either at the time of issue or at any subsequent time, the RBI said in a draft circular to banks.
The RBI has said card issuers should not enter into any arrangement or agreement with card networks that restrain them from availing the services of other card networks.

Credit card network

Credit card networks provide the centralised communication system that card issuers like banks and non-banks use to process credit card transactions.
The networks and issuers authorise and process credit card transactions, set the transaction terms, and move payments between customers, businesses, and their banks. Major credit card networks include Visa, Mastercard, American Express and RuPay.
Banks usually issue credit cards to customers in association with card networks. If a customer has a credit card issued by the bank with its logo and the Visa logo on it, the bank is the credit card issuer and Visa is the credit card network.
When a customer uses a credit card to make a purchase, the transaction request goes to the credit card issuer, who then decides whether or not to authorise it through the network system of the card networks.
The bank extends credit to the cardholder, and the cardholder pays the bank back for purchases made with the credit card.

What are the practices that RBI want to put an end?

Many banks have exclusively tied up – informally – with card networks to offer their services whether the customers prefer them or not. While one of India’s leading two private banks have tied up with Visa, the other one offers only the network of MasterCard.
Some banks have been forcefully asking customers to accept particular card networks.
The RBI had indefinitely barred Mastercard, American Express and Diners Club from issuing new debit, credit or prepaid cards to customers over noncompliance with local data storage rules two years ago but lifted the ban later.