UPI-Credit Card: RBI's Decision To Give Another Filip To Homegrown Payment Platform

UPI-Credit Card Linking: As the Reserve Bank of India (RBI) has proposed to link credit cards to Unified Payments Interface (UPI), the homegrown virtual payment system has got yet another filip for its growth. The proposal, coupled with the recent RBI’s announcement on cashless withdrawals at ATM via UPI, will boost the number of transactions on the UPI platform. Here’s details about UPI and credit card usage in India:

Total UPI Transactions in India

RBI Governor Shaktikanta Das, while announcing the decision, said, “UPI has become the most inclusive mode of payment in India with over 26 crore unique users and 5 crore merchants on the platform. In May 2022 alone, about 594 crore transactions amounting to Rs 10.4 lakh crore were processed through UPI. Currently, UPI facilitates transactions by linking savings/current accounts through users’ debit cards.”

Rating agency Icra said the UPI-based payment throughput more than doubled to Rs 84.16 lakh crore in FY2022 from Rs 41.04 lakh crore in FY2021.

Credit Card Usage in India

The total number of credit cards in the country at the end of April 2022 stood at about 7.52 crore. During the month, total online transactions worth Rs 6,565 crore took place through credit cards, including RuPay, Visa and MasterCard.

RBI Decisions Promoting UPI

The homegrown UPI has got major filing from the RBI of late. The RBI recently announced that the interoperable cardless cash withdrawal facility using the Unified Payments Interface or UPI platform, will be available across banks’ ATM networks. Currently, customers of a bank can only use their ATMs to withdraw cash without a card.

Now, the central band has proposed to allow the linking of credit cards on the UPI platform. To begin with, the RuPay credit cards will be linked to the UPI platform. This will provide additional convenience to users and enhance the scope of digital payments.

What Analysts Say?

Aashay Choksey, assistant vice-president (financial sector ratings) of ICRA, said, “As RuPay issued credit cards are still gaining market share, the overall credit outstanding against credit cards which stood at Rs 1.5 lakh crore as on April 22, 2022, and is unlikely to grow materially in the near term unless the enhancement in UPI linking is extended to other card platform operators as well.”

He added that permitting UPI-based payments to credit cards could lead to some of the upfront spendings from savings/ current accounts to shifting to credit cards which in turn could drive higher card utilisation levels and increase in spending per card for banks that operate a higher share of RuPay cards.

“If merchant adoption proceeds well, it will drive increase in transaction volumes for card issuers by opening up new use cases. Also, depending on the underlying architecture followed, this could create alternate rails to the card networks, which can have implications on the economics in the payments value chain,” the Citi group said in its report.

Kotak Institutional Equities, however, in a note said that it does not want to be optimistic on this development as the success of UPI has been its convenience on the consumer side and high confidence to accept at the merchant side. “This is likely to change when a credit transaction is proposed that has an MDR(merchant discount rate). It is still early days and we don’t think that this guideline addresses the concern of MDR on credit cards.”

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