Linking of Credit Cards with UPI

Q What is the context  ?

A The RBI has proposed to allow the linking of credit cards with the Unified Payments Interface (UPI).

Integrating Credit Cards to UPI

• The integration will first begin with the indigenous RuPay credit cards.
• Both the RuPay network and UPI are managed by the same organisation – the National Payments Corporation of India (NPCI).

Q What is UPI?

A 

• UPI is an instant real-time payment system developed by National Payments Corporation of India (NPCI) facilitating inter-bank transactions.
• The interface is regulated by the Reserve Bank of India and works by instantly transferring funds between two bank accounts on a mobile platform.

Q Why such move?

A 

• The linkage of UPI and credit cards could possibly result in credit card usage zooming up in India given UPI’s widespread adoption.
• The integration also opens up avenues to build credit on UPI through credit cards in India, where in the last few years, a number of startups like Slice, Uni, One etc. have emerged.
• The move could also be a push to increase adoption by banking on UPI’s large user base.
• So far, UPI could only be linked to debit cards and bank accounts.
• This will provide additional convenience to the users and enhance the scope of digital payments.

Q What could be the hurdles?

A 

• There are some regulatory areas that would have to be addressed before the linkage happens.
• For instance, it is not clear how the Merchant Discount Rate (MDR) will be applied to UPI transactions done through credit cards.
• UPI and RuPay attract zero-MDR, meaning that no charges are applied to these transactions, which is a key reason behind the prolific adoption of UPI both by users and merchants.
• The norm has faced pushback from the payments industry.
• It has argued that it limits the aggregators’ ability to invest in and maintain the financial infrastructure of the payment ecosystem that they have built.
• Applicability of zero-MDR on UPI could also be a reason why other card networks such as Visa and Mastercard may not have been onboarded to UPI for credit cards yet.
• MDR is a fee that a merchant is charged by their issuing bank for accepting payments from their customers via credit and debit cards.

Q What is the big picture?

A 

• UPI has become the most inclusive mode of payment in India with over 26 crore unique users and five crore merchants on the platform.
• The progress of UPI in recent years has been unparalleled.
• Many other countries are engaged with us in adopting similar methods in their countries.
• In May, UPI processed 5.95 billion transactions worth over Rs 10 trillion, a record high since its launch in 2016.
• NPCI is looking to soon process a billion transactions a day.