MasterCard, Visa, or RuPay? You may make a decision, not the bank says RBI

6 Jul 2023 , 10:16 AM

The Reserve Bank of India (RBI) is recommending against banks and card network companies like Mastercard, Visa, and American Express entering into exclusive agreements that stifle competition and disadvantage consumers.

According to a draft circular from the RBI, card issuer banks will now be required to issue cards from numerous network providers and provide clients the choice to select any one of the various card networks.

According to the central bank, the current agreements between card networks and card issuers (banks and non-banks) do not promote client choice. It has set a deadline of August 4 for public comments and made the circular effective on October 1. If used, users would have the option to select their card issuer at the time of issue or at any later time.

Banks that issue cards are no longer permitted to enter into exclusive agreements with card networks.

After the implementation of this circular, all new card agreements will be required to be revised. At the time of renewal, existing card agreements will also need to be modified.

The declared goals of the RBI have been to make the payment system accessible and to prevent a monopoly in the retail payments industry.

The Immediate Payment Service (IMPS) and Unified Payments Interface (UPI), in particular, have been a success for the National Payments Corporation of India (NPCI), which has contributed to lower fees while giving customers more options.

In a discussion paper on payment systems that the RBI published in August of last year, it was stated that fees for payment services should be fair and competitively decided for customers while also providing an ideal revenue stream for the intermediaries.

Despite objections from some banks and foreign card issuers who claim that doing so deprives retailers and issuers of any incentives to engage in expanding the card network, the government and RBI have thus far prohibited merchant discount rates (MDR) charges on the NPCI-promoted RuPay debit card.

RBI asked for comments on whether debit card transactions should be charged as regular funds transfer transactions in the discussion paper. Or, whether debit card MDR should be the same for all retailers.

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