In a move that will add to the growing popularity of the Unified Payments Interface, the Reserve Bank of India has proposed linking of credit cards to UPI.
“To begin with, the Rupay credit cards will be linked to the UPI platform,” RBI Governor Shaktikanta Das said on Wednesday, adding that this will provide additional convenience to users and enhance the scope of digital payments..
At present, UPI facilitates transactions only by linking savings/current accounts or through debit cards of users. The new facility will allow users to link UPI to their credit cards too. This feature would be available after the required system development is complete, RBI said , adding that necessary instructions will be issued to NPCI separately.
MDR unclear
However, it is not clear how the merchant discount rate (MDR) will be charged for UPI transactions through credit cards. At present, there is zero MDR on UPI and Rupay debit card payments.
At the post MPC press conference, RBI Deputy Governor T Rabi Sankar said talking about the pricing structure will be “jumping the gun”.
“The basic objective of linking credit cards to UPI is to provide the customer a wider choice of payments. How the pricing will work out, we will have to see because pricing is something that the banks and other entities will have to do. At this point, we will introduce the arrangement,” he said in response to a question.
Terming it an “interesting proposition”, Kotak Institutional Equities said in a report, “We don’t want to be optimistic on this development as the success of UPI has been its convenience on consumer side and high confidence to accept at the merchant side. This is likely to change when a credit transaction is proposed that has an MDR.”
Line of credit
However, experts said the linking of UPI to credit cards would introduce a line of credit to the payment channel.
“The addition of RuPay credit cards adds a credit line facility to UPI. Having a choice of payment, benefits both the merchant and the customer, as now the UPI payment can be done using a RuPay credit card without the merchant having a card-enabled POS terminal,” said Pranay Jhaveri, Managing Director - India and South Asia, Euronet Worldwide.
“While UPI has allowed a large section of the population to adopt digital payments, credit on UPI hasn’t played out very strongly in the past, despite some attempts being made on it. Since credit cards are the most widely used credit instrument used in India, this new development will boost credit access in the country,” said Shashank Kumar, CTO & Co-founder, Razorpay, adding that this is a significant move for small businesses in tier-II cities and beyond.
“If this takes off, we would have 10x merchants accepting credit cards in India in a few years,” he said.
UPI has become the most inclusive mode of payment in India with widespread user adoption. At present, over 26 crore unique users and 5 crore merchants are onboarded on the UPI platform. In May 2022, 594.63 crore transactions amounting to ₹10.40 lakh crore were processed through UPI.