In what would further strengthen UPI – an already impressive and powerful payment infrastructure backed by the Indian government – the Central Bank of India (RBI) has now allowed credit card linking with UPI. Until now, users could only link their checking/savings accounts to UPI via debit cards.
The announcement was made during RBI Governor Shaktikanta Das’ monetary policy speech in which he said, “UPI facilitates transactions by linking savings accounts or current accounts through users’ debit cards . It is now proposed to allow linking of credit cards on the UPI platform to begin with, RuPay credit cards will be linked to UPI. This will provide additional convenience to users and improve the reach of digital payments”
The service will initially be available only for local RuPay credit cards, with international networks like Visa and MasterCard soon to follow.
It remains to be seen what the Merchant Discount Rate (MDR) will be for these transactions. The MDR is a small percentage of the transaction charged to the merchant, which is split between banks and payment service providers. Since UPI is a federally operated transaction mechanism, no MDR is charged for it. This was the main reason for UPI’s widespread acceptance across the country, but also for it to become a rather loss-making business proposition for most gamers.
On the other hand, credit card transactions have the highest MDR at 2-3%. After the governor’s address, RBI Deputy Governor T Rabi Sankar commented on the matter, saying, “Thinking about the price structure is taking the leap. The fundamental purpose of linking credit cards to UPI is to provide the customer with a wider choice of payments. We will have to see how the price of this will work out, as it is something that banks and other entities will have to do. At this point, we’ll just present the arrangement.
Another variable is the additional security measures put in place for credit card transactions, such as two-factor authentication. UPI has not yet planned such measures.
Indigenous card network RuPay, which is operated by the National Payments Corporation of India (NPCI), held 60% of the Indian card market in 2020, according to data released by the RBI. And that, after all, is the resistance it faced in its early days from Visa and others. However, most of this portion is made up of debit cards, while in the credit card space, Visa and Mastercard continue to dominate.
The move comes as acceptance of UPI is at an all-time high. UPI accounted for 60% of all digital retail payments in fiscal year 2022. UPI currently has 26 crore users and 5 crore merchants. RBI recently announced UPI makes it possible to offer telephones, without the need for the Internet.
India’s RBI allows credit cards to be linked to UPI, starting with RuPay cards
Source link India’s RBI allows credit cards to be linked to UPI, starting with RuPay cards