RBI MPC Decisions: The Reserve Bank of India on Wednesday, June 8, said that it was proposing to allow linking of credit cards on UPI platforms. The new system will be introduced first by linking RuPay credit cards to UPI, or Unified Payment Interface, and then onboard other cards on the platform, RBI governor Shaktikanta Das said on the day. The decision was announced during the bi-monthly MPC meet statement of the Reserve Bank. Presently, users can only link their debit cards for UPI payments. With the new decision of the RBI, linking of UPI account to credit card is soon set to be a reality.
“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,” said Shaktikanta Das during his MPC statement on the day.
“At present, UPI facilitates transactions by linking savings/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 the UPI platform. This will provide additional convenience to users and enhance the scope of digital payments,” added the RBI governor.
The interoperability of PPIs or Prepaid Payment Instruments has also facilitated access of PPIs to the UPI payment system for undertaking transactions. In order to further deepen the reach and usage, it is proposed to allow linking of credit cards to UPI, the RBI said in its MPC statement.
“This arrangement is expected to provide more avenues and convenience to the customers in making payments through UPI platform. This facility would be available after the required system development is complete. Necessary instructions will be issued to NPCI separately,” added the statement.
No Clarity on Merchant Discount Rate for Credit Card Linked UPI Payments
However, it was not made clear by the RBI as to how the Merchant Discount Rate (MDR) will come into effect for UPI payments made through credit cards. Banks and payment service providers divide the amount paid by the merchant for each card transaction done. However, as per guidelines that came into effect from January 1, 2020, UPI and RuPay attract zero-MDR — which means that there are no charges on these transactions.
During the press conference after the MPC statement, RBI deputy governor T Rabi Shankar said that the central bank has laid the foundation and the pricing will be decided later in consultation with banks. “Basic objective of linking credit cards to UPI is to provide customers with wider choice of payments. Currently UPI is linked to debit cards and savings bank accounts only, but now it will be linked to credit cards as well. We will introduce the arrangement of credit card linkage with UPI, and see how the pricing goes,” he said.
Huge Push to UPI System, Say Experts
The move will work towards making UPI more effective, as per experts. UPI transactions have increased drastically over the past two years in the wake of the Covid-19 pandemic. “RBI has signaled increasing usage of UPI by adding credit cards as well which hopefully will further increase UPI penetration and digital payments overall,” said Vivek Bansal, Group CFO of InCred.
“With the latest announcement by RBI, it is proposed to be linked to credit cards starting with RuPay aimed at providing additional convenience to users and enhancing scope of digital payments. While the implementation timeline will have to be seen as banks and other stakeholders working with NPCI on the extent of changes required to enable the system. The overall impact on digital payments is expected to be significant as this opens up credit payments or short term loans on UPI payments,” said Vivek Goel, co-founder and joint managing director at Tailwind Financial Services.
“In order to further deepen the reach and usage of UPI while keeping consumer preference at the epicenter, the RBI has offered an innovative solution to permit the linking of credit cards on to UPI platform. This will not only encourage consumers to continue making payments via UPI but also provide the benefit of short-term credit that credit cards extend,” said Ramesh Narasimhan, CEO, Worldline India.
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