Reserve Bank of India (RBI) Directive on Card Networks
- March 7, 2024
- Posted by: OptimizeIAS Team
- Category: DPN Topics
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Reserve Bank of India (RBI) Directive on Card Networks
Subject: Economy
Section: Monetary Policy
- Directive to Card Issuers:
- RBI has directed card issuers, including authorised payment system providers, banks, and non-banks.
- They are instructed not to enter into agreements or arrangements with card networks that restrict them from using services of other card networks.
- Options for Customers:
- Card issuers must provide eligible customers with the option to choose from multiple card networks at the time of card issuance.
- For existing cardholders, this choice must be offered at the time of the next card renewal.
- Effective Date:
- These directives will come into effect six months from the date of issue of the circular.
- Authorised Card Networks in India:
- The currently authorised card networks in India include:
- American Express Banking Corp.
- Diners Club International Ltd.
- MasterCard Asia/Pacific Pte. Ltd.
- National Payments Corporation of India–Rupay
- Visa Worldwide Pte. Ltd.
- The currently authorised card networks in India include:
- Current Practice:
- Typically, authorised card networks form tie-ups with banks/non-banks for issuing credit cards.
- The choice of network for a customer’s card is decided by the card issuer (bank/non-bank) based on their bilateral agreements with card networks.
- RBI’s Observation:
- Upon review, RBI observed that some existing arrangements between card networks and issuers limit customer choice.
- These arrangements do not promote availability of options for customers.
- Fresh Agreements:
- The RBI has asked card issuers and card networks to execute fresh agreements to align with these changes.
- The directive aims to enhance customer choice and promote competition in the payment system.
- Purpose of the Directive:
- Issued with the interest of the payment system and public interest in mind.
- Aims to ensure customers have the flexibility to choose card networks that best suit their needs.
- Promotes a competitive and consumer-friendly environment in the card issuance process.
This directive from the RBI seeks to empower customers with more choices in selecting card networks, thereby enhancing competition and efficiency in the payment system.
Card Issuer Companies:
What are Card Issuer Companies?
- Card Issuer Companies are financial institutions or entities responsible for issuing payment cards to consumers, including credit cards, debit cards, and prepaid cards.
Why Do Card Issuer Companies Exist?
- They exist to provide consumers with convenient and secure payment options for transactions, both online and offline.
- Card issuer companies facilitate the use of credit facilities, offer access to banking services, and enable financial transactions globally.
Who are the Stakeholders Involved?
- Consumers: Individuals who use payment cards issued by these companies for purchases, payments, and withdrawals.
- Banks and Financial Institutions: Often the entities behind card issuer companies, providing the financial backing and infrastructure.
- Card Networks (Visa, Mastercard, American Express, etc.): Companies that provide the network for transactions and card acceptance worldwide.
- Regulatory Authorities: Governments and financial regulatory bodies overseeing card issuer operations, ensuring consumer protection and market stability.
- Merchants and Businesses: Accepting payments made through cards issued by these companies.
Functions and Roles of Card Issuer Companies:
- Issuance of Payment Cards:
- Providing consumers with various types of payment cards, including credit cards, debit cards, and prepaid cards.
- Setting Credit Limits:
- Determining the maximum amount of credit a cardholder can borrow for credit cards.
- Account Management:
- Managing cardholder accounts, processing transactions, monitoring balances, and generating statements.
- Transaction Authorization:
- Approving or declining transactions based on available funds, credit limits, and security checks.
- Customer Service and Support:
- Offering assistance for lost or stolen cards, transaction disputes, billing inquiries, and general customer inquiries.
- Security Measures:
- Implementing fraud prevention measures, encryption technologies, and security protocols to protect cardholder data.
- Fee Structures and Interest Rates:
- Establishing fees, charges, annual fees, interest rates, and penalties associated with card usage.
- Compliance with Regulations:
- Adhering to financial regulations, data protection laws, and consumer protection statutes.
- Partnerships with Card Networks:
- Collaborating with card networks to enable card acceptance, processing, and interoperability.
Types of Cards Issued by Card Issuer Companies:
- Credit Cards:
- Offer a revolving line of credit, allowing cardholders to borrow money up to a certain limit. Payments are made monthly, and interest may apply on unpaid balances.
- Debit Cards:
- Linked directly to the cardholder’s bank account, debiting funds immediately for purchases or withdrawals.
- Prepaid Cards:
- Loaded with a specific amount of funds by the cardholder, used until the balance is depleted.
- Co-branded Cards:
- Issued in partnership with a retail brand, airline, or other organizations, offering rewards, discounts, or benefits specific to that brand.
- Secured Cards:
- Backed by a security deposit, often used by individuals looking to build or rebuild credit.
- Contactless Cards:
- Utilize near-field communication (NFC) technology for quick and secure tap-and-go payments.
- Corporate Cards:
- Issued to employees of companies for business-related expenses, with features for expense tracking and reporting.