RBI's Move To Link Credit Cards With UPI: Expectations Vs Reality

RBI Governor Shaktikanta Das in an announcement said that UPI has become the most inclusive mode of payment in India with over 26 crore unique users and 5 crore merchants on the platform. In May 2022 alone, about 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 larger picture, UPI is one of the biggest success stories in India and RBI’s announcement of linking RuPay creditcards with UPI is a progressive move to catalyse digital payments in the country. Majority of small value transactions would now automatically come under the purview of creditcards, which is one big advantage to grow the volume of cards.

Would Proposed Linkage Encourage Unified Interface?

Akash Sinha, CEO and Co-Founder, Cashfree Payments states, “We welcome the RBI's move to allow credit cards (starting with Rupay) to be linked to the UPI accounts. This is an important step for enabling credit payments via UPI, which until now was only possible through linking overdraft accounts.” 

According to the insights from sector experts, the central bank’s move of linking credit cards with UPI is throwing a slew of challenges to the players of the industry. Along with this, industry captains feel that once the final operating guidelines would be released, it will demand a sizeable upgrade of unified payment interface infra across various mediums.

"There is now also a huge convenience factor for the customers because UPI is a frictionless way of transacting. This would be beneficial for fintech companies with a higher penetration of digital payments, leading to substantial growth in overall transactions. However it is still not clear how the Merchant Discount Rate (MDR) will be applied for UPI transactions linked to credit cards,” Saurabh Puri, Chief Business Officer - Credit Cards, Zaggle expresses.

What Is The Expected Large-Scale Impact? 

The debate on MDR is still ongoing since 2021 and it is expected to take some more time to establish a consensus on the interchange on the wallet which may be decided by the NCPI going forward. 

"In May 2022, UPI processed more than Rs. 10 trillion worth of transactions, witnessing a doubled volume and value of transactions in a year's time.  The central bank's announcement is well-timed and provides us with an added encouragement to continue our efforts to assist the payments industry accelerate the digitalization journey and promote financial inclusion," shares Akash Sinha, CEO and Co-Founder, Cashfree Payments.

Explaining further and sharing her take on the same, Deepti Sanghi, Co-Founder and CEO, Kodo said, “A number of our corporate card customers have requested for the ability to link their cards to UPI to be able to make all kinds of payments related to their company expenses seamlessly.” Adding to the same, she said that however, since there is no MDR charged to merchants for UPI payments, there is an open question of how will the credit card issuers cover their cost of capital and how will the underlying infrastructure support this. We are confident that the RBI, the banks and the NPCI will collaboratively formulate a directive, keeping all essential factors in mind.

The central bank has offered a lucrative solution of synchronising credit cards on UPI platforms, this move will encourage the reach and utility of both credit cards and UPI. The acceptance infrastructure for credit cards can dramatically increase as merchants will be able to accept credit card payments over their UPI accounts.