The Reserve Bank of India (RBI) has ushered in a significant change in the credit card landscape , allowing consumers greater freedom to choose their card networks.
The move, effective from September 6, 2024, prohibits card issuers from entering exclusive contracts that limit options, aiming to enhance consumer choice and promote fair practices in the credit card industry.
1. The RBI’s Directive: Empowering Consumer Choice
In a press release dated March 5, 2024, the RBI directed card issuers, including banks, to refrain from exclusive contracts with card networks. The review highlighted instances where such agreements restricted consumers’ freedom of choice. The directive emphasizes that card issuers must provide eligible customers the option to choose from multiple card networks at the time of issuance or renewal.
2. Applicability and Exemptions
The new rule applies to credit card issuers with more than 10 lakh active cards. However, it does not affect issuers who have their approved card networks. The circular requires adherence to the directive in existing agreements during amendments or renewals and in fresh agreements.
3. Authorized Card Networks in India
The RBI identifies five authorized card networks: American Express Banking Corp., Diners Club International Ltd., MasterCard Asia/Pacific Pte. Ltd., National Payments Corporation of India–RuPay, and Visa Worldwide Pte. Limited.
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These networks play a crucial role, connecting banks, merchants, and consumers to facilitate secure and efficient transactions.
4. Understanding Card Networks
As per HDFC Bank, a card network acts as the bridge between banks, merchants, and consumers, ensuring smooth and secure transactions. Whether you swipe or tap your card, these networks operate silently in the background, making transactions possible.
5. Implementation Timeline
The RBI’s directive will come into effect six months from the date of the circular, making it operational from September 6, 2024. This timeline allows card issuers to adjust their processes and systems accordingly.
With this progressive step, the RBI aims to foster a competitive and consumer-centric credit card industry.
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The directive ensures that cardholders have the power to choose the network that best aligns with their preferences, marking a positive shift towards a more transparent and user-friendly credit card landscape.
