Soon, consumers may choose cards of choice in their bank

Call it payment freedom if you want. The Reserve Bank of India (RBI) is moving fast to expand the canvas of freedom for the consumer by floating the idea that they are offered the freedom to choose from more than one card from a particular bank. What RBI has in effect meant is that banks that issue cards have to revise their exclusive arrangements with card issuers and offer more than one card to consumers, who, so far, have to willy-nilly accept whatever the bank pushes down his/her throat.

In almost all cases banks have exclusive tie-ups with card issuers and consumers of a particular bank offers only the brand of card with which it has an arrangement. In a draft circular RBI has made it clear that the days of such curbs on consumer choice are numbered, The Economic Times has reported.

The guiding principle behind the move has been to prevent dominance of any company/brand as well as keep the system affordable for the general public. It also dovetails with the government’s preference of reducing cash transactions to a minimum.

Mastercard, Visa, RuPay and Amex are the main players in the card business. However, in the past few years, all debit cards have come under tremendous pressure following the galloping popularity of the UPI route. Incidentally, the UPI is free of any charge.

Multiple offers
According to the communication from the apex bank, banks will need to offer cards from more than one network and they have to put the choice of cards to the consumer. What is significant is that consumers can not only select the card of their choice at the time of issue but also can switch to other brands after having settled with one card.

The banking regulator wants to implement the circular from the first day of October this year. It has solicited public comments on the proposals by August 4. If the proposal sails through, all banks have to draw up new agreements with card entities and have to revise existing ones.

In August 2022, RBI circulated a discussion paper that said that the payments system should be reasonable and affordable for all users. Simultaneously it would generate optimal business for the intermediaries.

Applying the same affordability principle to the UPI ecosystem, the RBI has not allowed merchant discount rates (MDR) to be charged on the RuPay cards which is promoted by the National Payments Corporation of India, the body behind the UPI revolution. Both the government and the RBI have resisted the pressure from the foreign card issuers and banks who say that there is no incentive to widen and deepen the card network in the absence of such incentives (MDR).

The RBI has also sought opinion on whether debit card transactions should be charged as normal fund transfer transactions or whether MDR for debit cards should be the same across merchants and be independent of turnover.