RBI allows credit cards to be linked with UPI; says banks will decide pricing

The Reserve Bank on Wednesday allowed credit cards to be linked with the unified payments interface (UPI), which will enable more people to make payments using the popular platform.

Till now, only debit cards connected to savings bank accounts and current accounts were allowed to link up to the UPI platform.

At present, making UPI payments is free, while credit card companies usually depend on the merchant discount rate (MDR), which is charged on every usage for making merchant payments as a revenue stream.

"... the basic objective of linking credit cards to UPI is to provide a customer (with) a wider choice of payments. Currently, UPI is linked through debit cards to savings accounts or current accounts," Reserve Bank Deputy Governor T Rabi Sankar told reporters at the customary post-policy press conference.

Earlier in the day, RBI Governor Shaktikanta Das announced that such linking will be possible starting with the credit cards issued by the RBI-promoted National Payments Corporation of India (NPCI).

He said the new arrangement will be implemented after system developments and instructions will be issued to the NPCI for the same.

Das said the new arrangement is expected to provide more avenues and convenience to the customers in making payments through the UPI platform.

UPI has become the most inclusive mode of payment in India, with over 26 crore unique users and 5 crore merchants onboarded on the platform, he added.

In May, 594.63 crore transactions amounting to Rs 10.40 lakh crore were processed through UPI, Das said.

To a specific question pointing out the differences between UPI and credit cards from a usage fees perspective, and how they are exactly opposite, Sankar said going into the pricing structure for such a service right now will be akin to jumping the gun.

"How the pricing of that will work out, we will have to see because pricing is something banks will have to do. The system entities will have to do. At this point, we will introduce the arrangement, and pricing we will see how it goes," Sankar said.

The Rupay network -- billed as an indigenous alternative taking on global biggies like Mastercard and Visa -- has a low market share in the segment.

Domestic rating agency Icra said permitting UPI based payments to credit cards could lead to some of the upfront spending from savings/ current accounts to shift to credit cards, which in turn could drive higher card utilisation levels and increase in spending per card for banks that operate a higher share of Rupay cards.

However, as Rupay-issued credit cards are still gaining market share, the overall credit outstanding against credit cards, which stood at Rs 1.5 lakh crore as of April 22, is unlikely to grow materially in the near term unless the enhancement in UPI linking is extended to other card platform operators as well, the agency said.

Industry players, however, welcomed the RBI move with AK Goel, the present chairman of industry lobby IBA, saying that it will promote customer convenience and digitisation.