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RBI Plan to Link Credit Cards With UPI

Context:

The Reserve Bank of India has proposed to allow the linking of credit cards with the Unified Payments Interface (UPI).

Relevance:

GS III- Indian Economy

Dimensions of the Article:

  1. Details
  2. What is Unified Payments Interface (UPI)?
  3. What is the significance of the move?
  4. What could be the hurdles?

Details:

  • 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).

What is Unified Payments Interface (UPI)?

  • Unified Payments Interface (UPI) is a system that powers multiple bank accounts into a single mobile application (of any participating bank), merging several banking features, seamless fund routing & merchant payments into one hood.
  • UPI, which was introduced in 2016, has become one of the most used digital payments platforms in the country.
  • The volume of UPI transactions has already reached ₹76 lakh crore in the current year, compared to ₹41 lakh crore in FY21 ,
  • Advantages of UPI Includes – Immediate money transfer through mobile device round the clock 24*7 and 365 days.
  • UPI Enables Single mobile application for accessing different bank accounts with Single Click 2 Factor Authentication – Aligned with the Regulatory guidelines yet provides for a very strong feature of seamless single click payment.
  • It also features Virtual address of the customer for Pull & Push providing for incremental security with the customer not required to enter the details such as Card no, Account number; IFSC etc.

What is the significance of the move?

  • 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.

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.

-Source: Indian Express


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September 2022
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