Card network portability
Volume 3: October 2023
In this newsletter we analyse the current commercial construct between various players in the cards lifecycle to understand who drives the selection of the network provider. We also explore other global domestic card schemes and the key drivers behind their launch. We then analyse the drivers for network selection from a customer standpoint and the high-level impact on banks in implementing the card network portability requirements.
The new guidelines are expected to challenge the duopoly of the large network providers in India and will compel card networks to come up with innovative propositions to differentiate themselves, which will result in better offerings and service quality for the end customers. This can also be considered as another intervention from the central bank to further promote the adoption of the domestic card scheme (RuPay) in the country, as part of promoting fair competition.
India launched its domestic cards scheme “Rupay” in 2016, which has since seen steady adoption by a number of public and private sector banks in India. However, international players still appear to dominate the Indian card market and to level up the playing field, the Reserve Bank of India (RBI), in a recent draft circular (dated 5 July 2023), made a proposal that will allow customers to select their card networks. These draft guidelines have extended the concept of portability to allow customers to select and switch between the major card networks in India: Visa, MasterCard, RuPay, Amex, and Diners. This would challenge the current status quo of bilateral agreements between the card issuer bank and network provider where the card issuer decides on the network provider, without any inputs or choice being given to the end users.
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This newsletter is a source of key insights relating to the evolution of payments systems.
What is card network portability?
Card network portability refers to the ability of cardholders to choose their desired network provider for their debit or credit cards. Generally, portability is the term associated with mobile networks, where a customer can change their mobile network provider while keeping the same phone number. Card portability follows the same principle, allowing the cardholder to keep the primary account number, while the card number would change as per the selected network. The draft guidelines issued by the RBI aim to provide the cardholders the option to choose their network provider of choice. Some of the key aspects highlighted in the guidelines include:
- Card issuers shall issue cards to their customers from more than one card network
- Card issuers shall provide the option of card network portability to their eligible customers either at the time of issuance or at any
subsequent time
- Card issuers shall not enter into any arrangement or agreement with card networks that restrains them from availing services of other card
networks
Key drivers in network selection from customer standpoint
The incentives provided by card networks and their agreements with the card issuer banks are the main drivers for selection of the card network by issuing banks. However, once the power of selection of the card network shifts to the customer, there will be other key drivers that will come into play in the card network selection. Some of these are outlined below:
Key takeaways
While UPI (instant payment system in India) is becoming the dominant mode of digital payments in India, one would argue whether cards as a segment deserves all this attention and policy interventions. India has historically been a debit card-using nation; however, recent data from the Reserve Bank of India shows that credit card transactions are steadily growing both in value (CAGR of 26% over FY2018 - FY2023) and volume (16% CAGR over FY2018 - FY2023) terms. In comparison, Debit cards have grown at a slower rate in value (CAGR of 9% over FY2018 - FY2023) and volume (1% CAGR over FY2018 - FY2023) terms. Another fact is that, unlike UPI, the credit card segment is still a revenue-generating proposition for all the ecosystem players.
The impact of the guidelines on the incumbent network and domestic card schemes will be realised in the coming time; however, banks will have their work cut out to implement these changes, and end customers appear to gain maximum from the card network portability guidelines.
