Banks seek six-month extension from RBI to implement new norms for credit, debit and co-branded cards

Representative image.

Banks, through the apex body Indian Banks’ Association (IBA), have sought a six-month extension beyond the June 30, 2022 deadline from the Reserve Bank of India (RBI) to implement the new norms for credit, debit and co-branded cards, according to multiple sources.

The norms were released by the RBI as part of the Master Direction on debit and credit cards, a document that consolidates instructions on rules and regulations.

The Master Direction limited the role of co-branding entities to marketing and distribution of credit or pre-paid cards, casting a shadow on the viability of the business models of card issuing fintechs such as Slice, Uni, OneCard, Fi, PayU’s LazyPay and Jupiter.

The changes which are set to come into effect on July 1 also said that the co-branding partner shall not have access to information relating to transactions undertaken through the card.

“The representation was made through IBA. Banks sought clarity on multiple points in the Master Direction and one of the key requests was to extend the deadline by six months,” said a fintech executive who did not wish to be named.

However, the RBI is yet to respond to the request to extend the deadline.

“There is a possibility that they may grant an extension for certain norms and not for others. But we are yet to hear from the RBI on any of that,” he added.

Besides the clarity on co-branded cards, banks have also sought time as many of the norms will require them to make technological changes at the back-end.

A banking industry source said, “There are many changes required to adhere to some of the norms in the Master Direction which apply to all cards.”

“For example, the norms ask card-issuers to seek One Time Password (OTP) based consent from the cardholder for activating a credit card, if it has not been activated by the customer themselves for more than 30 days from the date of issuance. There are also requirements related to interest-on-interest, credit limit etc. which will take time to implement.”

Working around the norms

Over the past year, these fintechs saw widespread customer adoption as they offered easy-to-use interfaces and options to repay bills and other expenses in three or more installments. For some customers, the option to pay in three installments was also made interest-free.

Not having access to customer and transaction data can severely hamper the marketing and growth plans and models that these companies have in place.

These companies display the customer's transaction on the app and extend rewards based on transactions which are a key customer pull. In the absence of the data it will be difficult to do this.

These norms also apply to other co-branded cards that banks issue with e-commerce and retail merchants like Amazon, Flipkart, Zomato etc. Fintechs, through different associations, have requested RBI to differentiate between them and other merchant co-branding entities while implementing norms.

The fintech executive said, “Merchant co-branding entities don’t have any oversight from banks. Fintech co-branding entities, on the other hand, work under the direct supervision of banks. Unfortunately, the norms do not differentiate between both kinds of entities.”

Banks and fintechs are in discussion to work a way around the norms in a way that the main co-branding entity will not save data.

The fintechs are mulling creating a separate entity that will be a Technology Service Provider (TSP) which can access the data. The TSP will fall under RBI's IT outsourcing norms under which banks can outsource data to such an entity. The main co-branding entity under the fintech will be a separate entity and will not be allowed to access data, the executive added.

In an interview with Moneycontrol, Shalini Warrier the Executive Director of Federal Bank which is one of OneCard’s partner banks said on these changes, “How we work with the partner will potentially change but I don't think it changes the proposition materially. Yes, there will be norms around how the data is conveyed, how it is used, who uses it. We are working through all those details.”

However, these changes cannot be implemented unless RBI’s gives a green signal. For now, the industry and banks are working to implement the changes as per the June 30 deadline, unless RBI gives a relief in the form of an extension.

Besides these changes, fintechs are also awaiting the final set of guidelines on digital lending. Moneycontrol had reported on April 26 that RBI was in discussion with digital lending and consumer associations as it gets closer to finalising the guidelines. The regulator had held meetings with the Digital Lenders Association of India (DLAI) as well as the Fintech Association for Consumer Empowerment (FACE).

According to industry sources, the consultations are now complete and the norms can be expected once internal deliberations are done by the RBI.