Credit cards can now be linked with UPI, staring with RuPay: RBI

New Delhi, Jun8: In a major shift in how the Unified Payments Interface (UPI) functions, the Reserve Bank of India (RBI) today said that credit cards too will be allowed to be linked to the UPI accounts.

 

 

 

The implementation will begin with the indigenous RuPay credit cards being allowed to be linked, followed by other card networks such as Visa and Mastercard.

 

 

 

Until now, customers could only link their debit cards to UPI. The announcement was made by RBI Governor Shaktikanta Das in his monetary policy speech. "UPI facilitates transactions by linking savings or current accounts through users' debit cards. 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. "This will provide additional convenience to the users and enhance the scope of digital payments," the governor said. It is still not clear how the Merchant Discount Rate (MDR) will be applied for UPI transactions done using credit cards. For each transaction, the merchant pays a certain percentage of the transaction amount which is then divided among the banks and payment service providers. According to a norm that came into effect on January 1, 2020, UPI and RuPay attract zero-MDR, meaning no charges are applied to these transactions. This is one of the key reasons for the widespread adoption of UPI by merchants across the country.

Credit cards on the other hand attract the highest MDR between two and three percent. Clarity will be needed on whether MDR will have to be let go for transactions done using credit cards linked to UPI.

 

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Further, credit cards also attract higher security measures including two-factor authentication, which may be difficult to implement for UPI transactions. On the MDR and other fee structures of linking other credit cards besides RuPay with UPI, RBI Deputy Governor T Rabi Sankar clarified in an address to the press post the policy announcement, "Thinking of the pricing structure will be jumping the gun." "The basic objective of linking credit cards to UPI is to provide a customer a wider choice of payments. How the pricing of that will work out we will have to see because that is something that the banks and other entities will have to do. At this point we will just introduce the arrangement," he added.