Last Updated on Jun 15, 2022 by Anjali Chourasiya
The Reserve Bank of India (RBI) on Wednesday announced that credit cards will now be allowed to be linked to Unified Payments Interface (UPI). It has given an upswing to both credit cards as well as UPI transactions.
Till now, only debit cards used to have connections with UPI platforms. Now, the doors have opened for credit cards as well. RBI Governor Shaktikanta Das said, ‘UPI has become the most inclusive mode of payment in India with over 26 cr. unique users and 5 cr. merchants on the platform’.
He mentioned, ‘The progress of UPI in recent years has been unparalleled. Many other countries are engaged with us in adopting similar methods in their countries’. The roll-out will start with RuPay cards, India’s homegrown card network and then for the rest of the cards in the industry. However, there are many questions to be answered.
Questions to be answered
To begin with, how the economics of this will work for card networks and other players? The RBI and National Payments Corporation of India (NPCI), which operates and manages UPI and RuPay, are yet to clarify this.
Secondly, there are charges involved in credit card transactions. It draws the highest charges, which the merchant has to bear these costs. The fees are usually divided among banks and payment service providers and are called Merchant Discount Rate (MDR). It is the key source of revenue for banks to which credit cards contribute the most. However, UPI payment comes under zero-MDR.
How zero-MDR will work for credit cards with UPI is still unknown. When asked about the pricing model, RBI Deputy Governor T Rabi Sankar said, ‘thinking about the pricing structure will be jumping the gun’. Nikhil Kumar, the co-founder of the payments API platform, said, ‘Card networks will not be okay with zero-MDR because it will take away a majority of their revenues.
Another question that needs to be addressed is ‘what will happen to fintech credit players that offer Buy Now Pay Later (BNPL) options as their Unique Selling Point (USP) across apps and physical stores?’. It seems to be a threat to BNPL players in the industry.
A long-awaited decision
UPI on credit cards has been a long-pending decision by the NPCI. Many fintech companies have been waiting for it too. Though it will take time to reach out to all the credit card players, the process needs clarity. For now, RuPay has the advantage over others in the industry. After the RBI announcement, State Bank of India (SBI) Cards share prices rallied 4.2%, while share prices of One97 Communications Ltd, the parent company of Paytm, rose 3.2%.
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