India's central bank proposed on Wednesday an integration between UPI and credit cards in a significant boost for a fast-growing payments protocol that has become the most popular way individuals in the South Asian market transact online.
"UPI facilitates transactions by linking savings or current accounts through users' debit cards," said Shaktikanta Das, governor of Reserve Bank of India at a briefing.
"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," he said. RuPay is India's homegrown card network, which is promoted by the National Payments Corporation of India, a special body of RBI that also oversees UPI payments.
UPI, a 5-year-old payments protocol built by a coalition of retail banks, is the most popular way Indians transact money. In the month of May, the UPI network processed over 5.9 billion transactions, up from 21 million during the same period 5 years ago.
Allowing UPI to work atop credit cards "will provide additional convenience to the users and enhance the scope of digital payments," he said.
The governor did not share the monetization aspect for UPI atop of credit cards.
What does it mean to be able to link a credit card with UPI? Would it mean that the merchant won't have to pay MDRs while the customer still enjoys credit card benefits? :O
— Puneet Kumar (@puneetiitm) June 8, 2022
UPI currently has no monetization model, something many fintech executives have expressed concerns about and requested RBI to reevaluate. The lack of this information is also critical because credit card instrument operates on some of the highest merchant discount rates, which they split with banks and payments service providers.
"UPI has been a homegrown behemoth. It's transformed the country and brought digital payments to the lives of the masses at an unimaginable scale. Credit plays a very important role in society. Extending credit with well managed risk usually helps in transforming and uplifting society over the years. While there have been attempts at extending credit via UPI in the shape of overdraft, it's been a non-starter," wrote Shashank Kumar, co-founder of Razorpay, in a thread.
"On the other hand, credit card as a form factor and card schemes have scaled the credit infra over last couple of decades and credit card has been seeing good growth in last few years. Number of POS is less than 10% of the no. of QR codes out there. Especially in tier 3 and 4, there is under penetration of Card POS. Hardware rentals make it non-lucrative. So if this takes off, we would have 10x merchants accepting credit cards in India in few years."
At the briefing, the central bank also raised the key interest rate for a second straight month. The RBI's rate setting panel voted unanimously to raise the repurchase rate by 50 basis points to 4.90%.
“Inflation has steeply increased much beyond the upper tolerance level,” said Das. “A large part of the rise in inflation is primarily attributed to a series of supply shocks which can be linked to the war.”