RBI Plan to Link Credit Cards with UPI

What is the News?

Recently, the Reserve Bank of India has proposed to allow linking of credit cards with the Unified Payments Interface(UPI).

Key Points:

• The linking of Credit Cards with UPI will first begin with the indigenous RuPay credit cards

• Both the RuPay network and UPI are managed by the National Payments Corporation of India(NPCI)

Challenges: 

• It is not clear how the Merchant Discount Rate (MDR) will be applied to UPI transactions done through credit cards

  • The MDR is a fee that a merchant is charged by their issuing bank for accepting payments from their customers via credit and debit cards

• According to a norm that has been in effect since January 2020, UPI and RuPay attract zero-MDR, meaning that no charges are applied to these transactions

• Applicability of zero-MDR on UPI could also be a reason why other card networks such as Visa and Mastercard may not have been onboarded to UPI for credit cards yet

Significance of this move:

• The linkage of UPI and credit cards could possibly result in credit card usage zooming up in India given UPI’s widespread adoption

• The integration also opens up avenues to build credit on UPI through credit cards

• The move could also be a push to increase adoption by banking on UPI’s large user base. So far, UPI could only be linked to debit cards and bank accounts

• This will provide additional convenience to the users and enhance the scope of digital payments

National Payments Corporation of India (NPCI):

• It is an umbrella organisation for operating retail payments and settlement systems in India

• It is an initiative of the Reserve Bank of India (RBI) and Indian Banks’ Association (IBA) under the provisions of the Payment and Settlement Systems Act, 2007

• Aim: To create a robust Payment & Settlement Infrastructure in India

Unified Payments Interface (UPI)

• It is a system that powers multiple bank accounts into a single mobile application, merging several banking features, seamless fund routing & merchant payments into one hood

• It also caters to the “Peer to Peer” collect request which can be scheduled and paid as per requirement and convenience