CARD NETWORKS IN INDIA

Why in the news? 

The Reserve Bank of India (RBI) has ordered a certain card network to stop “unauthorised payments” made using business cards.

More on the news 

• The RBI said the card network was allowing businesses to make payments to entities that were not authorized to accept card payments and transactions did not comply with KYC norms.
• The intermediary in the above case pooled a large amount of funds into an account that was not a designated account under the Payments and Settlement System Act, 2007 (PSS Act).

What is a Card Network? 

• Card networks: They are developed to utilize one mode of payment to pay for goods and services at multiple merchants and avoid carrying cash around.
  • The authorised card networks tie up with banks / non-banks for the issuance of debit/credit/ prepaid cards. 
  • Card networks connect banks, merchants, and customers (card users) so that transactions can be carried out smoothly and securely. 
  • A fee is charged to the businesses by companies that process its debit and credit card transactions (known as Merchant Discount Rate (MDR)).
• Card Issuer: Banks typically dominate the choice of card networks that will be issued to their customers while providing a Debit or Credit Card and the customers have little choice in the matter. 
  • However, RBI has asked card issuers to provide customers the option to choose from multiple card networks from October 1, 2023. 
  • The RBI also said that card issuers should not enter into any arrangement or agreement with card networks that restrain them from taking the service of other card networks. 

Card Network Market in India

• Authorised card networks in India: Visa, Mastercard, RuPay, Diners Club, and American Express.
  • RuPay is India’s indigenous payment network launched by NPCI to facilitate India’s entry into the global payments market. 
    • To ensure greater acceptability of the RuPay cards in foreign markets, NPCI has partnered with Discover Financial Services (DFS) USA and Japan Credit Bureau (JCB) Japan.
• Debit card segment is dominated by RuPay which has around 700 million cards and a 65% market share. 
  • Of the total 32.8 crore RuPay debit cards, about 28.1 crore came from public sector banks under the government scheme as of February 2023. 
• Visa and Mastercard dominate the credit card market. Together they own 90 % of India’s credit card market. The credit card portfolio of RuPay network is yet to see a spike.

Regulation of Card Network Ecosystem in India

• RBI as the Primary Regulator: The Reserve Bank of India (RBI) is responsible for overseeing and regulating payment systems in India, including card networks, under the PSS Act, 2007.
• Governing Legislation: PSS Act, 2007 defines a payment system as a system that enables payment to be effected between a payer and a beneficiary, involving clearing, payment or settlement service or all of them. 
  • “Payment system” includes the systems enabling credit card operations, debit card operations, smart card operations, money transfer operations or similar operations.
    • Although, the definition does not include a stock exchange.

Conclusion

For Successful domestic payment network development, India needs strong infrastructure and nimble regulation to ensure their success. To attract users and merchants, domestic payment card networks will also need to establish robust telecommunication networks, and consumer education among others.