Global: India Enforces Open Choice: Banks Barred from Exclusive Credit Card Agreements

In a significant regulatory move, the Reserve Bank of India (RBI), the country’s central bank and primary bank regulator, has directed banks to cease entering into exclusive agreements with credit card networks. The announcement, posted on the RBI’s website on Wednesday (March 6), aims to enhance consumer choice by dismantling partnerships that limit options for credit card users.

The RBI’s directive states, “Card issuers shall not enter into any arrangement or agreement with card networks that restrain them from availing the services of other card networks.”

To facilitate this, the RBI mandates that card issuers must provide eligible customers the option to choose from multiple card networks when obtaining a new card. For existing cardholders, this choice is to be presented during the next renewal process. However, the directive exempts card issuers with fewer than 1 million active cards and those with their authorized card networks.

Bloomberg News characterized the RBI’s decision as unexpected, noting that the move could particularly impact Visa and Mastercard in India, as these networks impose fees based on their card offerings, including fees for overseas usage. In contrast, American Express, which utilizes its own network, might experience minimal impact under the new rule.

Visa has been contacted for comment, and Mastercard has expressed support for the RBI’s initiative, stating that it aligns with efforts to enhance choice for cardholders.

This development follows a recent report stating that Visa and Mastercard had temporarily halted intermediated commercial card payments in India in response to an RBI directive, which instructed the companies to suspend domestic transactions for business payment solution providers (BPSPs). This action by the RBI may be linked to its efforts to regulate the flow of money to merchants who have not undergone proper know your customer (KYC) processes.

In a related update in the credit card domain, the U.S. Consumer Financial Protection Bureau (CFPB) has issued a final rule reducing credit card late fees, lowering the typical fee from $32 to $8.