The National Payments Corporation of India (NPCI), the umbrella organisation for retail payments in the country, will commence a pilot project of enabling credit cards on unified payments interface (UPI) over the next two months. The entity is in discussions primarily with public sector card companies like SBI Card, PNB Cards and Union Bank to commence the test run, according to a source with knowledge of the matter.
Currently, UPI allows linking of bank accounts by mapping a bank account linked with a mobile numbers. This can be done through third-party apps like Google Pay, Amazon Pay, PhonePe, etc or the apps of banks like SBI, ICICI Bank, Axis Bank, HDFC Bank, etc. Last month, the Reserve Bank of India (RBI) allowed linking of credit cards with UPI, and said that to begin with Rupay credit cards will be linked with UPI in an effort “to provide additional convenience to users and enhance the scope of digital payments”.
“NPCI is trying to make it live by end of August or September. It will start with a pilot, with a few banks who are ready to start this. There are some players like SBI Card, PNB Cards, Union Bank have shown interest, in addition to Axis Bank on the private side,” an NPCI official said, adding that private banks have not been as forthcoming for the project as their public-sector counterparts.
As part of the pilot project, NPCI will integrate the UPI AutoPay feature with credit card transactions, with an aim to reduce the risk of defaults on credit card payments.
“Today, banks cannot issue a physical credit card to someone with a smaller credit limit because of the cost of issuance involved. That’s why the digital approach is necessary. With the UPI AutoPay, it adds a lot of value. With this the distribution and collection costs come to near zero. Technically, banks can do step-up credit once they understand consumer behaviour, and expand their base,” the official added. The UPI AutoPay allows users to make recurring payments on the UPI platform for smaller amounts.
The linking of credit cards with UPI will enable consumer to make small ticket sized payments on credit issued to them through bank issued credit cards. “Growth happens through credit and not from your own money, that’s what various economic models over the years have shown. This will enable that,” a banking industry executive said.
However, industry experts at the time had pointed out that the adoption of credit cards through UPI will depend on MDR dynamics given that much of UPI’s adoption at the bottom of the pyramid has been possible because these merchants have to pay zero merchant discount rate (MDR) — a fee payable by merchants to card issuers.
The executive added that NPCI will likely propose a model where a fee is levied on higher ticket size transactions, while waiving off the fee for small transactions to drive adoption with smaller merchants like roadside vendors, grocery store owners, etc.
UPI has become one of the most popular modes of payment in India with over 26 crore unique users and 5 crore merchants on the platform. In May 2022, around 594 crore transactions amounting to Rs 10.4 lakh crore were processed through UPI.