Linking credit cards to UPI to drive higher acceptance

The Reserve Bank of India said it will allow linking of credit cards to the UPI platforms. In the initial stage, only the RuPay credit cards will be linked to the UPI platform, the central bank said. The move will increase the acceptance infrastructure of credit cards as merchants can accept credit cards using UPI.

While the linking of the unified payments interface (UPI) with RuPay credit cards is seen as an advantage by major stakeholders, more clarity will be needed on some of the operational aspects, industry people said.

While the merchant discount rate (MDR) is levied by banks on merchants for card transactions on point-of-sale machines, MDR charges on UPI transactions is waived off. “Pricing is something that is not yet known. How will MDR pan out, how they will be able to charge are yet to be cleared out,” Dewang Neralla, CEO of NTT DATA Payment Services India, a payments aggregator, said. Clarity from the regulator on the issue of MDR is very important for the whole payments ecosystem, he added.

According to Aashay Choksey, assistant vice president – financial sector ratings, ICRA, the move can lead to a shift to credit cards, which, in turn, could drive higher card utilisation level and increase in spends per card for banks that operate a higher share of RuPay cards.

However, as RuPay-issued credit cards are still gaining market share, the overall credit outstanding against credit cards, which stood at around Rs 1.5 trillion as on April 22, is unlikely to grow materially in near term unless the enhancement in UPI linking is extended to other card platform operators as well,” he said.

Since more clarity is needed on the subject, it is not possible to comment on the issue, a spokesperson for a bank said. An e-mail sent to Bank of India did not evoke a response. “This is a welcome move, which will facilitate customers to gain the best of both worlds – payments and credit. This is expected to bolster spends in economy and is a very forward-looking step to improve the fiscal economy,” Shailendra Singh, MD & CEO of BOB Financial Solutions, said.

The move is aimed at providing additional convenience to users and enhance the scope of digital payments, the RBI said. “UPI has already proven its utility by its widespread adoption, and bringing the same convenience to access credit can be a watershed moment for credit penetration in India. Today, UPI is practically omnipresent, and I do not doubt that UPI-enabled credit cards will foster the next phase of credit-backed growth,” Gaurav Chopra, CEO of online credit marketplace platform IndiaLends, said.

UPI transactions have hit record highs in May as the platform doubled the transactions value to the tune of Rs 10 trillion during the month.

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