This topic of “RBI Proposal for Credit and Debit Card Interoperability” is important from the perspective of the UPSC IAS Examination, which falls under General Studies Portion.
- The Reserve Bank of India (RBI) released a draft circular in early July, seeking comments from stakeholders on a proposal for credit and debit card interoperability.
Mandate for Card Issuers
- Card issuers will be required to provide multiple choices of card networks for customers.
- This includes credit cards, debit cards, and prepaid cards.
- Customers will have the option to choose their preferred card network at the time of card issuance and also at a later date.
- The proposal aims to address the issue of limited customer choice in card networks.
Proposal for Multiple Network Cards
- The RBI is proposing to introduce multiple network cards to increase competition and enhance customer options.
Issuers to Avoid Restrictive Agreements
- Card issuers will be discouraged from entering into restrictive agreements that limit customer choices.
- The current lack of card network choice in India includes limited options such as American Express, Diners Club International, Mastercard, RuPay, and Visa. The proposal aims to address this limitation.
- The proposed changes are expected to be implemented from October 1.
- For existing customers, the option to choose multiple card networks will be available at the time of amendment or renewal.
- For new customers, the provisions will be applied by default.
- Outstanding credit cards saw a 1.43% month-on-month increase, reaching 87 million in May.
- Debit cards also saw a 0.7% increase month-on-month, reaching 974 million.
- The increase in card usage is attributed to higher awareness and sufficient infrastructure for face-to-face and online transactions.
- Credit card transactions on e-commerce platforms saw an 11% increase, with a 10.8% increase in transaction volume.
- The CEO of Bank of Baroda predicts that e-commerce spends will surpass physical spends, and there will be a transition to “virtual cards.”
- The emergence of UPI (Unified Payments Interface) has become a medium for both physical and digital transactions, enabling easier cash flow management.
- The rise in card payments is driven by new digital-focused companies and a growing customer base in tier 3 and 4 cities.
- Features such as tokenization and EMI (Equated Monthly Installments) have contributed to the increase in card usage.
- Providing choice in card options is expected to boost the payment ecosystem in India.