Linking of UPI with Credit Cards: A Major Step


Priyank Kothari’s shares his views on its implications.

The RBI’s decision of linking UPI with credit cards is indeed a big one and is welcomed by the experts. The Reserve Bank of India has allowed linking of all RuPay-enabled credit cards with UPI – the world’s largest public domain digital payments system. UPI is an instant real-time payment system that powers multiple bank accounts into a single mobile application and facilitates inter-bank transactions using a mobile phone. Now the payment through credit cards will become more accessible through QR codes without the need of a Point of Sale (PoS) machine.

While on one side it throws open a totally new payment system of credit card owners, meaning if any customer do not have digital payment option but has a credit card- he can do the transaction. On the merchant side, especially in case of unorganized merchants, who accept UPI payments only as P2P (Person to Person), for them accepting UPI payments is free and they will be able to accept UPI payments from a credit card too. This will be a good head start for those merchants. They are more in number and have huge presence across rural, fast-growing-emerging India.

Will it also give a head start to RuPay? While it starts with RuPay and the government can have a lot of influence on RuPay, it will be very cost-effective for the middle class or lower middle class of India. But I don’t think RuPay will have a huge head start or advantage here, eventually, Visa and Mastercard also will offer this.

According to me, it is an innovative and strategic step to link credit card with UPI, as it will promote the ultimate mission of digital India whilst promoting transactions through UPI. Now a consumer who wants to pay using his/her credit card can do it via UPI, with credit card being a back-end instrument. It will not only accelerate digital transactions but will also affect the average ticket size of the transaction. The average ticket size of UPI ranges around Rs. 1,116 per transaction (Source: BHIM), while that of a credit card is around Rs 4,112 (Source: ET). So, now with this development the UPI ticket size is likely to go up somewhere around Rs. 3,000 plus.

UPI has become the most inclusive mode of payment in India, with over 26 crore unique users and 5 crore merchants on-boarded on the platform.

However, I do see a few challenges with regards to MDR. The MDR is the fee merchants pay in exchange for payment services provided by banks. UPIs do not have any MDRs whereas credit cards do, hence there will be a major source of revenue loss for banks. For this, the NPCI would have to come up with a solution or there may be some resistance towards adopting UPI linked credit card. While there will be flexibility of payments and market penetration with these credit cards, there will be a few operational challenges as linking the credit cards to UPIs will be time consuming.

Lastly & undoubtedly, the linking of UPI with credit card is going to increase the scope of digital payments. The linkage will promote the notion of digital India, propelling it forward for more adoption and further the financial inclusion in the country that is heading for a USD 5 Trillion Economy.

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