RBI’s decision to tie credit cards to UPI’s expectations versus reality

Currently, UPI facilitates transactions by linking savings/current accounts through users’ debit cards. However, since no MDR is charged to merchants for UPI payments, the question remains open as to how credit card issuers will cover their cost of capital. Let’s dive deeper

RBI Governor Shaktikanta Das said in an announcement that UPI has become the most inclusive payment method in India with over 26 crore unique users and 5 crore merchants on the platform. In May 2022 alone, around 594 crore transactions amounting to Rs 10.4 lakh crore were processed through UPI. Currently, UPI facilitates transactions by linking savings/current accounts through users’ debit cards.

If we look at the big picture, UPI is one of the biggest success stories in India and RBI’s announcement to link RuPay credit cards to UPI is a progressive move to catalyze digital payments in the country. The majority of small value transactions would now automatically fall under credit cards, which is a big plus for increasing card volume.

Would the proposed binding encourage the unified interface?

Akash Sinha, CEO and Co-Founder of Cashfree Payments said, “We welcome RBI’s decision to allow credit cards (starting with Rupay) to be linked to UPI accounts. This is an important step to enable credit payments through UPI, which until now was only possible by linking overdraft accounts. »

According to insights from industry experts, the central bank’s decision to tie credit cards to UPI poses a host of challenges for industry players. Along with this, industry captains believe that once the final operational guidelines are released, it will require a significant upgrade to the unified payment interface across various mediums.

“There is now also a huge convenience factor for customers, as UPI is a frictionless means of transaction. This would benefit fintech companies with higher penetration of digital payments, leading to substantial growth in overall transactions. However, it is still unclear how the Merchant Discount Rate (MDR) will be applied to credit card-related UPI transactions,” says Saurabh Puri, Commercial Director – Credit Cards, Zaggle.

What is the expected large-scale impact?

The MDR debate is still ongoing as of 2021 and it should take some more time to build consensus on the exchange on the wallet that may be decided by the NCPI in the future.

“In May 2022, UPI processed over Rs 10 trillion in transactions, doubling transaction volume and value in one year. The announcement from the central bank is timely and further encourages us to continue our efforts to help the payments industry accelerate the digitalization journey and promote financial inclusion,” says Akash Sinha, CEO and co-founder of Cashfree Payments.

Explaining in more detail and sharing her views on the same, Deepti Sanghi, Co-Founder and CEO, Kodo said, “A number of our corporate card customers have requested the ability to link their cards to UPI to be able to make all kinds of payments related to their business expenses seamlessly. Adding to the same, she said that however, as there is no MDR charged to merchants for UPI payments, there is an open question as to how credit card issuers will cover their cost of capital and how the underlying infrastructure will support it. We are confident that the RBI, Banks and NPCI will collaboratively come up with a guideline, bearing in mind all the essential factors.

The central bank has proposed a lucrative credit card synchronization solution on UPI platforms, this move will encourage the reach and usefulness of credit cards and UPI. The credit card acceptance infrastructure may increase significantly as merchants will be able to accept credit card payments on their UPI accounts.