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RBI cracks down on deals between banks and card networks

Regulator says banks can’t enter into deals with card networks that put customer at a disadvantage

RBI cracks down on deals between banks and card networks
[Source photo: Chetan Jha/Press Insider]

The Reserve Bank of India (RBI) has revised rules to bar exclusive deals between card issuers and card network firms in a move that will allow customers the freedom to select from various card networks.

Until now, the choice of network for a card issued to a customer is decided by the card issuer such as bank and is linked to the arrangements that the latter had with various card networks.

Based on a review of the current arrangements, RBI said on Wednesday, 6 March, that these deals between card networks and card issuers were not in consumer interest as they restricted the customer’s ability to choose their own preferred card network.

Following the review, the banking regulator said that it has decided that “card issuers shall not enter into any arrangement or agreement with card networks that restrain them from availing the services of other card networks.”

The regulator said card issuers should offer eligible customers an option 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,” RBI said in its circular.

The RBI listed American Express Banking Corp., Diners Club International Ltd, MasterCard Asia/Pacific Pte. Ltd, National Payments Corporation of India–Rupay, and Visa Worldwide Pte Ltd as the authorized card networks.

The regulator said that card issuers and card networks should adhere to the rules in “existing agreements at the time of amendment or renewal thereof, and fresh agreements executed.”

The rules will not be applicable to credit card issuers that have fewer than 1 million active cards, RBI said, adding that entities who issue credit cards on their own authorized card network are also excluded from the scope of the revised rules.

The regulator said the directive will be effective six months from the date of the circular.

The banking regulator had in July last year released a draft circular in which it said that deals between card networks and card issuers did not offer a choice for customers.

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