Explained: The RBI plan to link credit cards with UPI

The Reserve Bank of India has proposed linking credit cards with UPI. What is the significance of the move? What could be the hurdles? What is the big picture?

Industry experts believe that the linkage of UPI and credit cards could possibly result in credit card usage zooming up in India given UPI’s widespread adoption. (File Photo)

The Reserve Bank of India has proposed to allow the linking of credit cards with the Unified Payments Interface (UPI). While making the announcement in his monetary policy speech Wednesday, RBI Governor Shaktikanta Das said that the integration will first begin with the indigenous RuPay credit cards. Both the RuPay network and UPI are managed by the same organisation – the National Payments Corporation of India (NPCI).

Also in Explained | RBI announces 50 bps Repo rate hike, here's how this impacts you

What is the significance of the move?

Industry experts believe that the linkage of UPI and credit cards could possibly result in credit card usage zooming up in India given UPI’s widespread adoption. The integration also opens up avenues to build credit on UPI through credit cards in India, where in the last few years, a number of startups like Slice, Uni, One etc. have emerged. The move could also be a push to increase adoption by banking on UPI’s large user base. So far, UPI could only be linked to debit cards and bank accounts.

“This will provide additional convenience to the users and enhance the scope of digital payments,” Das said.

What could be the hurdles?

There are some regulatory areas that would have to be addressed before the linkage happens. For instance, it is not clear how the Merchant Discount Rate (MDR) will be applied to UPI transactions done through credit cards.

The MDR is a fee that a merchant is charged by their issuing bank for accepting payments from their customers via credit and debit cards. According to a norm that has been in effect since January 2020, UPI and RuPay attract zero-MDR, meaning that no charges are applied to these transactions, which is a key reason behind the prolific adoption of UPI both by users and merchants. However, the norm has faced pushback from the payments industry, which has argued that it limits the aggregators’ ability to “invest in and maintain the financial infrastructure” of the payment ecosystem that they have built. Applicability of zero-MDR on UPI could also be a reason why other card networks such as Visa and Mastercard may not have been onboarded to UPI for credit cards yet.

What is the big picture?

Story continues below this ad

“UPI has become the most inclusive mode of payment in India with over 26 crore unique users and five crore merchants on the platform. The progress of UPI in recent years has been unparalleled. Many other countries are engaged with us in adopting similar methods in their countries,” RBI Governor Das said.

In May, UPI processed 5.95 billion transactions worth over Rs 10 trillion, a record high since its launch in 2016. NPCI is looking to soon process a billion transactions a day. Additionally, even as the central bank increases benchmark rates to rein in the surging inflation, a move like this could be aimed at boosting credit-led consumption in the country.

Newsletter | Click to get the day’s best explainers in your inbox

Soumyarendra Barik

Soumyarendra Barik is a Special Correspondent with The Indian Express, specializing in the complex and evolving intersection of technology, policy, and society. With over five years of newsroom experience, he is a key voice in documenting how digital transformations impact the daily lives of Indian citizens. Expertise & Focus Areas Barik’s reporting delves into the regulatory and human aspects of the tech world. His core areas of focus include: The Gig Economy: He extensively covers the rights and working conditions of gig workers in India. Tech Policy & Regulation: Analysis of policy interventions that impact Big Tech companies and the broader digital ecosystem. Digital Rights: Reporting on data privacy, internet freedom, and India's prevalent digital divide. Authoritativeness & On-Ground Reporting: Barik is known for his immersive and data-driven approach to journalism. A notable example of his commitment to authentic storytelling involves him tailing a food delivery worker for over 12 hours. This investigative piece quantified the meager earnings and physical toll involved in the profession, providing a verified, ground-level perspective often missing in tech reporting. Personal Interests Outside of the newsroom, Soumyarendra is a self-confessed nerd about horology (watches), follows Formula 1 racing closely, and is an avid football fan. Find all stories by Soumyarendra Barik here. ... Read More