New RBI circular on debit and credit cards could boost RuPay

In a recent circular, the RBI of India said that it had fired a shot in India's war against international card networks. The nation is slowly pushing back against international card networks such as Mastercard and Visa, which dominate the card industry. RuPay, India's homegrown card network, has gathered momentum in recent years. The RBI's circular on cards could propel it further. The dependence of international payments networks poses a potential danger in today's geopolitical landscape. The Russia-Ukraine war has been the subject of India's efforts to become self-reliant in payment systems and networks, but the conflict has highlighted how a country can be economically damaged if it is cut off from international payment networks. The RBI's new circular on debit and credit cards can help reduce the sway of international card networks in India. The RBI proposed that banks and card network providers such as Mastercard, Visa and American Express cannot get into exclusive arrangements. The company says such arrangement curbs competition and puts the consumer at a disadvantage. The provider of RuPay, Mastercard, Visa, American Express, Diners Club International, and Mastercard provide services to customers in India, but the service provider is usually determined by the bank based on the card issued. Card issuer banks will therefore have to issue cards from more than one network provider, and will have to provide customers with an option to choose one among the multiple card networks. The RBI has called for public comments by August 4 and set a date for implementation of the circular by October 1 for public comments. The new rule requires customers to either choose their card provider at the time of issue or another time. All new card agreements will, of course, have to be rejigged when this circular is implemented. At the time of renewal, existing card agreements will also need to be amendments. While the main objective is to offer the customer choice, it can go a long way in enabling India to be self-reliant in payments. The new rule will have a strong impact on the market for RuPay, a card that can now compete with major international players such as Visa and Mastercard. The new policy will encourage affordability and disallow the dominance of a few companies that happen to be global players. The new rule is designed to make it easier for the home-grown RuPay cards to benefit. Despite protests by some banks and foreign card issuers, the government and RBI have not allowed any merchant discount rates MDR on the NPCI-promoted RuPay debit card despite the opposition of some banks and foreign card issuers who contend that it leaves merchants and issuers with no incentives to invest in deepening the card network. A merchant is obligated to charge MDR for the payment of debit and credit card transactions. There is zero MDR for transactions through the RuPay debit card. ET reported nearly two months ago that India's high-street banks had sought the government for an MDR on RuPay debit cards, saying it will provide them with the necessary funds to enhance payment network security and develop innovative payment solutions. Now that the customers have a choice, RuPay cards, both debit and credit, will find space to grow, which was otherwise in the stranglehold of big global players, while banks saw no incentive in promoting RuPay debit cards. The RBI had raised the issue of levying MDR on Rupay debit cards in a discussion paper last year. India has been promoting RuPay so aggressively in recent years that a worried Visa Inc. had expressed concerns to the US government about the lack of an even playing field in India. The use of RuPay credit cards, which is likely to get a boost with the new RBI rule and might eventually become the dominate of global majors, is significant not just for payments self-reliance, but also for domestic financial expansion. RuPay, the National Payments Corporation of India NPCI that launched and manages RuPay, has been seeking to aggressively push the use of RuPay credit cards in the market for which it has tried bank tie-ups. RuPay credit cards account for just 1% of the overall credit card spend in the nation. RuPay has hardly moved the needle in its credit card business, but the regulatory nod for RuPay credit cards on UPI transactions is opening up fresh use cases, a banking executive told ET in May. The NPCI is also collaborating closely with a number of top banks to figure out ways to push the use of these credit cards and has set an internal goal of cornering around 10% of the overall credit card spends in the next year. The RBI allowed the linking of RuPay credit cards to the UPI network, which experts say has the potential to expand the market for credit by nearly five times. While the current average for those getting instant loans is around 50 million dollars, allowing credit card transactions through UPI interface is set to provide almost all the 250 million users of UPI access to such credit. RuPay's low international presence is a major hurdle for the company. In growing cases, customers choose cards with wide international acceptance. The RBI's annual report said that internationalisation of the Indian payment system is a priority for the government. With respect to global outreach of RuPay cards, arrangements have been made with Bhutan, Singapore, Nepal, and the UAE to accept RuPay cards without co-branding with other international card schemes. Issuance of Rupay cards in other countries also being considered, he said. RuPay cards have been accepted by Discover, the US, Diners Club, JCB of Japan,pulse and Union Pay of China at the point-of-sale machines. NPCI is trying to expand RuPay's international acceptance by looking for more tie-ups so that users of RuPay cards are at par with those using Visa or Mastercard. The RBI will also allow theissuance of RuPay prepaid forex cards by banks in India for use at ATMs, PoS machines and online merchants abroad. RuPay debit, credit and prepaid cards can be issued in foreign countries and globally, including in India. These actions will increase the accessibility and acceptance of RuPay cards globally.