Rupay Credit Card Payments through UPI: The Worst Nightmare for Indian Merchants

Explore the unforeseen challenges faced by Indian merchants with the surge in Rupay credit card transactions on UPI. Delve into the complexities of merchant discount rates (MDR) and discover why businesses are calling for change. Uncover the latest developments shaping India's digital payment landscape.

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In what was perceived as a leap toward complete digitization and seamless transactions, the integration of Rupay credit card transactions with UPI (Unified Payments Interface) opened new avenues for users. However, what seemed like a promising endeavour soon turned into a nightmare for merchants, especially those dealing in high-value transactions. The unsuspecting merchants found themselves helplessly witnessing the growing popularity of Rupay credit card transactions on UPI, which, while offering customers credit card offers, rewards, and interest-free credit for up to 45-50 days, inflicted a significant financial blow on businesses.

From a modest Rs 50-60 crore daily transaction value in May, Rupay’s presence on UPI surged to a staggering Rs 100 crore daily in October, often peaking at Rs 150-200 crore per day on weekends. This rapid increase caught the attention of merchants, triggering a wave of concern. Rupay’s share of new credit card issuances skyrocketed from less than 10 percent to an astounding 25 percent, equating to around four lakhs new cards issued monthly, according to the National Payments Corporation of India (NPCI), the driving force behind Rupay and UPI.

However, this surge in popularity came at a cost.

Merchants, both small and large, found themselves grappling with higher commissions, specifically the merchant discount rate (MDR), for UPI payments made through Rupay credit cards. While typical credit card transactions incur a 2 percent MDR, Rupay’s integration added an unforeseen financial burden for merchants, particularly impacting high-value transactions.

This financial strain led to approximately 15-20 percent of merchants urging their banks to disable Rupay credit card payments on UPI. Renowned establishments like Decathlon, IRCTC, Pizza Hut, Jiomart, Vodafone-Idea, Delhivery, and Mother Dairy opted out of accepting Rupay credit card payments through UPI. This resistance persisted despite NPCI’s guidelines mandating merchants to accept Rupay on UPI through the scan and pay method.

While NPCI’s endeavor to disrupt international card networks such as Visa, Mastercard, and American Express in the Indian market remains a pivotal project, the unexpected challenges faced by merchants underscore the complexity of this endeavor. With NPCI dominating the debit card market but holding only a 10 percent share in the higher MDR-heavy credit card market, cracking this space becomes paramount.

Despite attempts to seek clarification, NPCI, HDFC Bank, ICICI Bank, Axis Bank, Pizza Hut, Jiomart, Vodafone-Idea, IRCTC, Mother Dairy, Delhivery, and Decathlon have remained silent on the matter. This unforeseen clash between innovation and merchant financial viability sheds light on the intricate dynamics of India’s evolving digital payment landscape.


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