The exploded adoption of UPI (Unified Payment Interface) has encouraged the RBI (Reserve Bank of India) to make UPI payments more appealing to users. In a significant shift in the way it operates, RBI has announced going further users would be able to link credit cards with UPI accounts.
The process, however, will start with the homegrown RuPay credit cards becoming permitted to be linked. Soon the authorities will allow the other card networks like Visa and Mastercard, albeit no timeline is given.
Up until now, customers could pay via UPI app by adding debit cards only.
RBI Governor Shaktikanta Das announced the change during his speech on monetary policy.
“UPI facilitates transactions by linking savings or current accounts through users’ debit cards. It is now proposed to allow linking of credit cards on the UPI platform to begin with the RuPay credit cards will be linked to UPI,” he said.
The governor believes that the decision to link credit cards with UPI will bring more convenience to users which will result in extending the scope of digital payments.
It’s still unclear how the Merchant Discount Rate (MDR) will be applied to UPI transactions that are applicable on credit cards. A specific percentage of the transaction which is levied on sellers is later divided between the payment service provider and banks.
In accordance with a rule which came into effect on January 1st, 2020, UPI and RuPay are exempted from MDR, which means there are no fees added to these transactions. The exemption made UPI payments much more popular among the people and is one of the major reasons for the widespread acceptance of UPI by merchants across India.
Besides, handling two-factor authentication, which is mandatory for Credit card payments, is another challenge on UPI platforms. The authorities didn’t elaborate on the process of using credit cards on UPI apps.
RuPay is the card network run that is operated by the National Payments Corporation of India (NPCI) and has managed to capture a 60 percent market share in India’s debit card market in 2020. However, Visa and Mastercard continued to maintain their pole position in the credit card segment.
UPI accounted for 60% of all retail digital transactions in India during FY22. During the year the system of payments crossed the $1 trillion threshold in transactions, which was an important milestone.
In May 2022, 595 crore transactions worth ₹10.41-lakh crore were processed on the UPI platform. The number of UPI transactions will be expected to cross 600 crores in June 2022.
According to a study, India’s digital payments market is expected to grow three folds to a whopping $10 trillion by 2026.
The decision to allow customers to add the credit card they use to their UPI accounts has come at a time when UPI adoption has been skyrocketing for the past two years. In the announcement, Das revealed that UPI currently has 26 million unique users and five crore merchants.
NPCI is the umbrella organization that handles UPI, RuPay, Bharat Bill Pay, and others. It expects that the value of UPI transactions will reach $1 billion a day in the next two to three years.
NPCI is currently focused on the two major developments that will extend the landscape of UPI. First, enabling UPI for feature phones, and second, offline UOI payment processing on smartphones. UPI is already in the final phase of testing of UPI123Pay which is for feature phones. NPCI has also published a circular explaining the way UPILite will function with offline modes on smartphones.