Why RBI has increased its scrutiny on co-branded credit cards

RBI’s scrutiny on credit cards: The Reserve Bank of India (RBI) has intensified its scrutiny on co-branded credit cards, a sector that has witnessed significant growth recently. This aims to prevent unauthorised entry into the tightly regulated credit card industry, informed sources told ET.

They mentioned that the central bank aims to tighten regulations on co-branded credit cards.

The founder of a fintech startup operating in this field stated that the regulator has previously raised concerns about data sharing between co-branding partners. They emphasised the importance of brands solely serving as sourcing or marketing channels for co-branded cards, rather than allowing unregulated entities to exploit them for access to the tightly regulated credit card sector.

The person highlighted that non-banking finance companies (NBFCs) have been seeking approval to issue credit cards for years. However, the regulator has only permitted a few banks to issue these cards. The founder added that the RBI desires the growth of co-branded cards but insists that it must occur within a regulated framework.

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The central bank issued a directive on March 7, requiring all co-branded card issuers to prominently display the name of the issuing bank. Additionally, it instructed co-branding partners not to access any transaction information of the cardholder.

Additionally, in a circular issued on March 6, the RBI prohibited banks from entering into exclusive agreements with card networks such as Visa, American Express, and Mastercard. This move aims to provide customers with multiple card network options.

Last month, the central bank imposed restrictions on business and commercial payments made through credit cards. According to industry estimates, B2B vendor payments through credit cards were totaling Rs 30,000 crore per month, nearly 20% of total credit card spending. However, these transactions have now been halted.

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Many major brands offer credit cards to their customers through co-branding arrangements. For instance, Swiggy issued approximately 120,000 HDFC Bank cards, while Tata Neu issued around one million of them. Additionally, as of December 2023, ICICI Bank issued more than 4.7 million cards through Amazon Pay.

As per RBI data, ICICI Bank has a total of 16 million cards issued, while HDFC Bank has approximately 20 million cards issued. Presently, the total number of credit cards in the country has reached 99.5 million, up from 70 million in January 2022. Furthermore, the outstanding credit card debt has surged to Rs 2.5 lakh crore, compared to Rs 1.5 lakh crore a year ago.

The startup founder was further quoted as saying, “The regulator is concerned around the end use of credit cards, be it corporate use cases or retail use cases… That is why you see all these regulatory actions taking place. As of now, B2B payments have been stopped and the sector is awaiting further instructions.”

The restrictions on credit card business follow the central bank's recent tightening of scrutiny in the digital lending and payments aggregator space.

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