RBI Allows Users To Link Credit Card With UPI: Why It Matters?

UPI Credit Card
Image Credit: Sameer/Fossbytes

RBI Governor Shaktikanta Das announced that users can now link their credit cards with Unified Payment Interface (UPI) accounts. Earlier, debit cards were only linkable to UPI accounts.

According to the RBI Governor, the step aims to enhance the convenience for the users in the spectrum of digital payment.

Shaktikanta Das said, “UPI facilitates transactions by linking savings or current accounts through users’ debit cards.” It is now proposed to allow the linking of credit cards on the UPI platform; to begin with; the RuPay credit cards will be linked to UPI.

Way forward on linking credit cards with UPI

The initiation of linking the credit cards with UPI will start with the RuPay credit card and be followed by other cards. Users may also link their Visa and Mastercard to their UPI accounts at later stages.

Generally, UPI and RuPay have zero Merchant Discount rates or MDR, which are widely adopted. But, it is ambiguous in the case of credit cards.

MDR is the percentage of the transaction bifurcated amongst the bank and payment service providers. Because credit cards have a high MDR of around 2 to 3 percent, it remains unclear whether MDR will be charged on credit cards linked with UPI.

UPI users have seen massive growth in the past few years, and this step can be fruitful in this direction. Shaktikanta Das also highlighted that UPI has 26 crore unique users and five crore merchants on the platform.

UPI arrived on the digital payments circuit five years ago and has laid a great helping hand in transforming the country into a digital economy.

Started by a coalition of rental banks, UPI made more than 5.5 billion transactions in five years. The lack of a monetization model remains a concern in this announcement, which is yet to be clarified by the RBI.

Digital merchants are expected to witness a seven-fold growth in the next five years, from $0.3-0.4 trillion to $2.5 to 2.7 trillion. The UPI domain has three key players – Paytm Payments Bank, Phonepe, and Google Pay.

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