RBI Directives Restricting Card Networks Will Not Affect Profits

RBI Directives Restricting Card Networks Will Not Affect Profits

Volume of transactions may drop, without affecting the profit earned.

Juviraj AnchilUpdated: Sunday, February 18, 2024, 11:28 AM IST
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Representative Image | Pixabay

The Reserve Bank of India had recently asked card networks to cease payments through intermediaries to entities which do not accept card payments, saying a large amount of funds are involved in the activity without legal sanction. This has led to significant amount of intrigue and subsequent speculations in the segment and the market at large.

Profits to remain unaffected

In a report, Australian investor company, Macquarie capital has pointed out that, there would be a decline in the volume of transaction in the segment, as a result of the diktat. But, at the same time, according to the report from the Sydney-based company, this development will not impact the profits generated by the companies.

High volume, Low margin

Banks note that while transactions made with these cards carry a high value, they do not generate the same level of fees (merchant discount rate) as retail sales. However, they anticipate that their card earnings will not be significantly impacted as a result.

Although the volumes of transaction were not disclosed, either by the banks or the card networks, the margin that they engendered were low, as compared to the volume, that they represented, thereby underscoring its lack of impact on the revenue.

It was on the February 14, that the central bank said, that the arrangement has raised concerns as the intermediary in the arrangement pooled large amount of funds into an account which is not a designated account under PSS Act. The RBI called these transactions to be activities 'without legal sanction'.

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