RBI allows linking RuPay credit cards to UPI

In the monetary policy announcement on 08th June, there was a fairly significant announcement in the statement of regulatory and development policies. The RBI has proposed allowing the linking of credit cards with UPI or the Unified Payment Interface.

The UPI has had phenomenal growth in India and does 10 times the credit card transactions in any average month. Obviously, by allowing the linking of credit cards with UPI, the big beneficiary will be the credit card companies that get much wider audience to tap.

What is the big change that has happened?

Till date only debit cards that are linked to bank accounts were allowed to be linked to a UPI id. A UPI id is much simpler than remembering a  bank account number and the 11 digit IFSC code.

The UPI id is just like a small email address (it can be something like aaa@hdfcbank) and the amount automatically gets debited or credited into that particular bank account. That is the power of simplicity that UPI brings to the payment mechanism, which is why it has become so popular.

Now, effective the June policy, the government has allowed even credit cards linked to UPI address. This is likely to provide a boost to the credit card transactions. In short, if you are at a shopping outlet and want to pay with your credit card, you don’t need your credit card.

You can actually authorize payment with your credit card using a simple UPI id or a quick response (QR) code. Currently, that facility is already being followed in debit cards, wherein one can withdraw cash from multiple ATMs without the card using UPI authentication.
 

However it is not going to happen immediately. For starters, the RBI has asked the National Payments Corporation of India (NPCI) to first work out the framework for the same. That will take time. Secondly, to begin with, RBI will start the facility with only RuPay credit cards.

Obviously, it could see a much larger impact when Visa and Mastercard are also permitted, but RuPay is a good place to start with. This is expected to provide more avenues and convenience to the customers in making payments through UPI platform.

The bottom line is that the penetration of credit cards is very low in India. Credit cards have the lowest penetration rates of just 5.55% in India. There are a total of 7.36 crore credit cards in India with monthly transaction volume of just about Rs.1 trillion.

The volumes on UPI are nearly 10 times that. Linking credit cards will not only promoter RuPay cards but also open a new avenue for UPI and also expand the credit card base usage in India.

For the month of May 2022, UPI recorded a total of 595 crore transactions worth Rs10.40 trillion. Most experts feel that this could be a win-win situation for both credit cards and UPI. Credit cards will get a much wider acceptance infrastructure.

This will also make it safer since using cards is open to spoofing, loss of data, loss of identity etc. All that can be avoided by using UPI. This will also boost the acceptance of credit cards in smaller and mofussil towns where UPI is the gold standard for payments.