Card network portability ambiguity in RBI's circular

Card network portability ambiguity in RBI’s circular. What needs to be done by RBI to ensure card users get the desired benefits?

Card network portability refers to the ability of cardholders to choose their desired network provider for their debit or credit cards.

The Govt and RBI realized that due to the existing arrangement between card service network providers and issuers, customers did not have enough choices.

Starting October 1, Indian customers using credit, debit, and all sorts of prepaid cards will be free to switch their card networks among Visa, MasterCard, Ru-Pay, American Express Card, Diners Club etc, and vice versa, similar to mobile network portability between Vodafone, Jio, and Airtel etc.

The facility, announced in RBI’s draft circular above, aimed at card users to select their preferred network service provider. Though RBI has not issued a confirmatory circular affirming the implementation of the directive on card network portability from Oct 1 2023, as proposed, one may safely assume that the draft directions issued on July 5, 2023, are now effective.

Till now while applying for a card, users had no say in choosing the network provider as the issuer institution used to decide. Within the network of such card service providers (VISA/Master/Rupay) card issuers are used to seek customer’s choice of card variant (classic, gold, platinum, signature etc)  and issue such card variant.

Authorized card networks in India include American Express card (issued by American Express Banking Corp., Diners Card (issued by Diners Club International Ltd., MasterCard (issued by Master Card Asia), Ru-Pay (issued by National Payments Corporation of India- NPCI), and VISA Card (issued by Visa Worldwide Pte. Ltd)

In the July 5, 2023 draft circular, the central bank directed card issuers, including banks and finance companies, to provide customers with multiple network options.

RBI aimed to make the credit/debit card usage ecosystem more competitive, safer and more convenient for consumers. By allowing customers to select the network, the regulator has enhanced flexibility, fosters innovation, and will help clients reduce all the related costs. With the ability to switch between networks *at any time* like Visa, Master, Rupay and others, customers can now choose services that align with their domestic usage or international usage needs, and enjoy attractive incentives, rewards, and insurance benefits at competitive pricing.

What it means?

While applying for a debit/credit card all issuing banks will have to provide eligible customers the option to choose any one card network among the available option/s. Issuing banks can no longer compel the customer to get a card linked to its tied service provider without giving them the option/s to choose from Visa, Master, or Rupay.

No doubt this is going to be a problem for a small bank that has no tie-up with more than one card network or cannot handle multiple card networks and how they are going to comply with these directions, in the interim.

Benefits For Consumers

Till now issuers/banks used to choose the card network service provider and also the card variant under it to meet their targeted commitments to such providers and grab handsome joining fees and Annual Maintenance Charges (AMC). To issue a VISA debit card banks like Yes Bank charge Rs.300+ 18% GST (similar Annual fee/charges) whereas Ru-pay is normally without any charge or Rs.100+ GST. Customers had no choice either while issuing or the option of porting interim depending on his/her usage requirement, privileges needed and financial budget. Many banks had been using the higher Annual Maintenance fees to fund their card marketing (incentivize cash back schemes).

One incidental observation:

Many clients like very senior citizens and non-tech savvy do not want debit cards and wish to have only use ATM cards to use on the card issuer bank’s network only (like SBI’s debit card a few years ago). Standalone ATM cards cannot be used on another bank’s ATM. I do not know why RBI is not directing banks to issue standalone ATM cards to clients needing such cards to use only on the ATM card issuer’s ATM network (with one-time issuance charges).

Banks have been pushing the VISA/Master debit cards for a handsome revenue while many customers do not need them. Further major portion of overall earnings from these cards is shared with these international card service provider/s. 

For the reasons best known to the banks, all banks have collectively discontinued the issuance of standalone/pure ATM cards. Many customers don't want to use it for purchases on the internet, e-commerce websites (PoS) etc for them VISA/Master Card linked debit cards become burdensome (including financially). They have to go through the hassle of limit management etc.

Such customers can now request to switch to a Ru-Pay debit card. Now Ru-Pay credit cards can be used to make Unified Payments Interface (UPI) payments hence there would be an increase in demand for Rupay credit cards.

I wonder why RBI is not looking at this debit card AMC charges aspect (other than Jana Dhana Accounts) as it affects almost all the banking clients. Huge Annual Maintenance Charges (AMC) charges are a burden to many clients whose needs could be satisfied with Ru-pay debit cards or ATM cards.

I have observed that RuPay cards are relatively cheap and offer world-class service to ME, helping in retaining full of its domestic earnings and a major portion of FX profit in India/home country.

Ru-pay credit cards are getting recognition overseas also, though not as widely accepted as VISA/Master/Diners/Amex linked cards. Its more and more usage will compel the merchants outside to accept it.

When Can You Port Your Card Network?

Card network portability can be exercised during the issuance of new cards, at the time of renewal, or at any time (in between). RBI has asked the card issuers not to extend existing agreements executed after the circular date.

Competition and Innovation

By targeting existing agreements between card networks and issuers, the RBI aims to nurture a more competitive environment that better meets customers' evolving needs and expectations. Removing limitations encourages collaboration between card issuers and multiple networks, enhancing user services and benefits.

This customer-centric approach will enable individuals to align their financial preferences with the specific benefits and features offered by different card networks, resulting in a tailored and personalized experience that also helps the country to broaden the Ru-Pay card business.

Increased competition among card networks will drive innovation and improvements across the card industry. Card Issuers and network service providers will introduce innovative solutions, take steps to enhance service quality and bring in attractive rewards/benefits.

Banks need to comply with the RBI's guidelines. I have requested RBI to issue a confirmatory circular stating that the draft guidelines have been made effective from Oct 1 2023 to remove the ambiguity and fact that some banks taking advantage of the ambiguous situation and earning extra by ‘early renewing’ the existing VISA/Master/Amex/Diners linked cards  (included co-branded).

I have seen many banks issuing new cards 2-3 months before their scheduled expiry and also renewing cards for long periods to keep it’s their source of revenue for some more time, intact.

Banks need to be told to amend the messages they send to customers just before sending renewed debit/credit cards which normally read as:

"Dear Cardholder, Your Debit/Credit Card ending with XXX is due for renewal in DEC-2023. If you need any change in Address/Card variant/Card limit, please visit the nearest branch OR send an email to ---------   from Regd Mail ID"

If RBI and the Govt are keen to see the positive impact of the aforesaid decision.

1. RBI may issue wide publicity to this (to create client awareness) directive specifying such porting can be done at any time ( as stated in point 3 (c ) of the draft circular dt: July 5, 2023)

2. Inform issuers of implementation of this directive from Oct 1, 2023 and request card issuer entities to incorporate ‘choice Card network/service providers names’ in all their card pre-renewal messages, sent to clients.

if both steps are not taken promptly, I am afraid, like many other good things proposed in the past but failed due to poor implementation, the desired outcome cannot be noticed, for many more years.