Credit card-UPI linkage likely to be game changer

Credit card on UPI, which was launched by RBI Governor Shaktikanta Das last week, is likely to be a game changer as we will see an increase in the number of transactions on UPI with the payment instruments being credit cards.

The RBI Governor launched three key digital payment initiatives during the Global Fintech Fest 2022 - RuPay Credit Card on UPI, UPI LITE, and Bharat BillPay Cross-Border Bill Payments.

Launching the initiatives, the RBI Governor said that technology, innovation and fintech are working in tandem and contributing to the dynamism of the sector. In our journey towards higher level of sustainable development and financial inclusion, these forces morphed into force multipliers.

Taking a step ahead in this direction, state-run lender, Union Bank of India has launched NPCI's UPI linked to RuPay Credit Card and UPI Lite on the unified payments interface (UPI) platform with Kiya.ai as their technology partner. Until now, UPI allowed the linking of bank accounts by mapping an account linked with a mobile number and a savings/current account. It was in June, when the RBI had allowed the linking of credit cards with UPI, to provide additional convenience to users and enhance the scope of digital payments.

Initially, it will be allowed for RuPay credit cards only and going forward we expect that other scheme credit cards may also have this UPI linkage. From a pricing perspective, PwC expects the pricing (MDR) for low value UPI on credit card transactions to be zero. However, for higher value transactions, it is expected that the merchant discount rate (MDR) for UPI on credit cards will be similar to credit card swipe at online/physical locations.

No doubt, this is a game-changing initiative as it will ensure safe and contactless transactions while eliminating the risk of credit card frauds. Credit card system is a different platform with its own billing system, its own charge back system and various different parameters of credit card limits. While the current UPI system uses debit cards for a customer to onboard into the UPI system, post that UPI directly uses the bank account. As the platform is currently connected to the bank account of the customer, it uses the CBS system as well the UPI system of the bank.

But now, with this credit card system being different, all banks need to build that technology bridge between the credit card platforms that they have and their regular UPI systems. Credit card payments are subject to 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.

Besides UPI, banks not only have UPI but they also have IMPS, AePS and they are used to handling multiple platforms at the same time. It is possible to make these platforms interoperable to add value to the initiative.