The Reserve Bank of India has recently decided to allow the linking of credit cards to UPI (Unified Payments Interface). This means that now you can now make your payments through any UPI app and the app can be linked to a debit card or a credit card based on your convenience.
According to the monetary policy announcement which took place last week, RBI said that they will allow the linking of Rupay cards to UPI. For this, they will also come up with a new credit payments facility on the interface. There still are a few questions that remain unanswered as this decision comes to us. There is the issue of how credit card issuers will cover their cost of capital, who will bear the merchant discount rate (MDR), and more. To add to this there is also the lengthy process for UPI apps to replicate the stern know your customer (KYC) which is followed meticulously by the credit card ecosystem.
Talking about MDR, think of it as a fee that the merchants and vendors have to pay in exchange for the bank services that they get. Currently, the merchants are not charged for receiving payments on UPI. Now that credit cards are in the picture, MDR charges will apply. So from now on, for every credit card transaction that will happen, the merchant will have to pay the bank a certain amount of fee. The RBI also stated that right now they have just decided on the structure, the pricing for the same will be decided later.
Former BharatPe Co-founder and one of Shark Tank India judges, Ashneer Grover too had something to say about the decision. BharatPe is the first Fintech startup in India that enabled merchants to pay online. Mr. Grover, himself a co-founder of the app tweeted, “Linking of credit card on UPI is a great move by RBI. Unfortunately, it’ll be a non-starter unless issuers, especially banks understand that merchants will not pay MDR. So there is no interchange to be made on UPI.”
Fintech platforms such as Paytm and Mobikwik have always allowed their users to add money from their credit cards to their digital wallets. But that also limits the user as the wallet amount can be used only on the wallet of the same company. Ankit Gera, the co-founder of digital payments firm Junio, said, “Linking credit cards with UPI means users can now pay at any UPI QR whether it’s BharatPe UPI QR, PhonePe, or GooglePay.”
RBI Governor Shaktikanta Das said the following in his monetary policy speech, “UPI facilitates transactions by linking savings or 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 UPI. This will provide additional convenience to the users and enhance the scope of digital payments.”
The RBI right now has only informed us about this implementation that will first begin with the linking of RuPay cards. It will then be followed by other card companies such as Visa and MasterCard.