The Reserve Bank of India will allow linking credit cards with the Unified Payment Interface. As a start, RuPay cards can be linked with the UPI platform.
The move will further deepen the reach and usage of UPI.
"This arrangement is expected to provide more avenues and convenience to the customers in making payments through UPI platform," the RBI said as part of its developmental policy announcement on Wednesday. "This facility would be available after the required system development is complete. Necessary instructions will be issued to NPCI separately."
UPI-based payments have become a popular option for small-ticket retail transactions. Over 26 crore unique users and five crore merchants are onboarded on the platform, the RBI said.
In May 2022 alone, 594.6 crore transactions amounting to Rs 10.40 lakh crore were processed through UPI.
Adding the option to link your credit card with the UPI platform could give it a further boost.
"We see this as a move aimed at smoothening the payment process," said Anand Kumar Bajaj, managing director and chief executive officer at fintech firm Paynearby. "This will help merchants accept credit card payments without having to invest in special acceptance point-of-sale devices."
There, however, could be technical issues to resolve before the feature picks up. For one, credit card payments are subject to merchant discount rate or MDR but UPI payments are not. "Since merchants are not used to paying MDR on UPI payments, we will have to see how credit card MDR will impact this acceptance," Bajaj said.
Vijay Shekhar Sharma, founder of Paytm, tweeted this could be a game changer but could also mean the beginning of MDR being applied to mobile payments.
This is a game changer move by RBI.
Also the beginning of MDR / Interchange of card networks starting to apply on mobile payments. https://t.co/SUAOp1qz0AIntroducing MDR on credit card payments through UPI may be easier said than done.
Analysts at Kotak Institutional Equities said a card network like RuPay may need to sign fresh agreements with merchants, where they agree to accept both credit and debit transactions. This, however, "implies that there could be pushback if the flow moves more towards credit over traditional UPI", Kotak said in a note.
One way to solve this is to have multiple formats of UPI where some may accept credit card payments, while others don't, leaving it to the merchants to choose. Another solution is to make changes in the structure of the MDR, by taking card issuers and acceptors into confidence. But if the NPCI were to favour merchants and introduce zero MDR for credit card payments on UPI, issuers may reduce issuance of new RuPay cards in the short term, Kotak Institutional Equities analysts said.
Permitting UPI-based payments to credit cards could lead to some of the upfront spending from savings/current accounts to shift to credit cards which in turn could drive higher card utilisation level, said Aashay Choksey, assistant vice president for financial sector ratings at ICRA.
However, since the market share of RuPay cards is still small, the increase may not be material unless the UPI linking is extended to other card platform operators as well, Choksey said.
Macquarie analysts Suresh Ganapathy and Param Subramanian said the potential benefits from the RBI's move could be delayed, due to fewer RuPay cards in force. RuPay cards form only 2% of the total credit cards issued in the market.
"Hence, we think it won't move the needle in a big way, unless banks massively ramp up RuPay-based credit cards in the near future," Macquarie analysts said.
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