RBI allows linking of credit cards with UPI: Details here
What's the story
UPI or Unified Payment Interface transactions have made life simpler for Indians. It is about to get even simpler, as the Reserve Bank of India (RBI) has allowed linking credit cards to UPI network. Until now, transactions were facilitated by linking customers' savings/current accounts through debit cards. RuPay credit card users will be the first to benefit from the newly announced regulatory change.
Context
Why does this story matter?
India's digital payments market is expected to hit $10 trillion by 2026. UPI has played a major role in India's digital payment revolution. Its inclusiveness has made payments hassle-free. The introduction of credit cards to the UPI network will further its influence. The short-term credit extended by credit cards clubbed with the popularity of UPI is expected to be a dynamic duo.
Growing popularity
UPI recorded over 590 crore transactions in May
UPI was introduced in 2016 by the National Payments Corporation of India (NPCI). Speaking about UPI transactions, RBI Governor Shaktikanta Das said, "UPI has become the most inclusive mode of payment in India with over 26 crore unique users and five crore merchants on the platform." "In May 2022 alone, about 594 crore transactions amounting to Rs. 10.4 lakh crore were processed through UPI."
Benefits
Linking of credit cards will increase the reach of UPI
One of the major disadvantages of UPI was the inability to use credit cards for any transaction. The linking of credit cards announced by RBI will further deepen the reach and usage of UPI. According to Ramesh Simhan of Worldline, "This will not only encourage consumers to continue making payments via UPI but also provide the benefit of short-term credit that credit cards extend."
Information
Transactions will be limited to RuPay credit cards initially
RBI has announced that using credit cards for UPI will be limited to homegrown RuPay cards initially. Other major players like Visa and Mastercard are expected to be included later.
Process
Credit card linking will be available once system development completes
RuPay credit cards are currently provided by Punjab National Bank, IDBI Bank, Union Bank, State Bank of India, Bank of Baroda, Federal Bank, HDFC Bank, and Saraswat Co-operative Bank. According to RBI, the new feature will be "available after the required system development is complete." After that, users can link their credit cards to UPI apps and pay by simply scanning the QR code.
Concern
UPI's lack of monetization could be a hindrance
One worrying aspect of linking credit cards to UPI is the latter's lack of a monetization model. Considering how credit cards operate on high merchant discount rates which they split with banks and payment service providers, this is an important issue. Several fintech executives have earlier expressed their concerns to RBI. It remains to be seen how the central bank will tackle this.