Explained: The RBI plan to link credit cards with UPI

What is the News?

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

Linking of Credit Cards with UPI

The linking of Credit Cards with UPI will first begin with the indigenous RuPay credit cards.

Both the RuPay network and UPI are managed by the same organization – the National Payments Corporation of India(NPCI).

Note: So far, UPI could only be linked to debit cards and bank accounts.

Significance of this move: The linkage of UPI and credit cards could possibly result in credit card usage zooming up in India given UPI’s widespread adoption.

What could be the hurdle to this proposal?

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.

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 also. Payment industries have argued that it limits the aggregators’ ability to invest in and maintain the financial infrastructure of the payment ecosystem that they have built.

Source: The post is based on the article “Explained: The RBI plan to link credit cards with UPI” published in Indian Express on 9th June 2022.

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