Will credit card-UPI linkage bolsters Mission Digital India?

Curving Upward

- At present, avg ticket size is Rs1,600 per transaction

- Avg credit card transaction is Rs4,000

- UPI ticket size may go up to Rs3,000- 4,000

- Rise in acceptability at many merchants

- Consumers ideally prefer to pay by credit card via UPI

Mumbai: The RBI has proposed to allow linking of credit cards to UPI. It will surely increase the usage of credit card in small ticket size payment. Over the past few years, UPI has become the most inclusive mode of payment and is the most popular way Indians transact money. RBI's recent move of linking credit cards with UPI accounts is a major shift in how the unified payments interface (UPI) functions.

Talking to Bizz Buzz, Shailendra Singh, MD, BOBFSL, said: "This is a welcome move which will facilitate the customers to gain best of both the worlds-of payments and credit."

This is expected to bolster spends in the economy and a very forward looking step to improve the fiscal economy, he added. Credit card core platforms have many functionalities like customer on-boarding, underwriting, store of credit limit, card management, add on card, rewards, loyalty, collections, reporting, etc. Credit card is just a form factor and with RBI permitting linking of credit cards with UPI, UPI ID/virtual payment address will be an additional form factor for customers. Customers will transact on the same credit line at merchant establishments that accept UPI payments, so there is no additional credit risk on those customers.

Mehul Mistry, Global Head Strategy, Digital Financial Services and Partnerships at Wibmo - A PayU company, says, "in my view, linking of credit cards to UPI will not enhance the risk, because linking of debit cards to UPI has not enhanced the threats in the domain of digital payments. Linking of credit card to UPI will be very similar to linking of debit card."

There shouldn't be any additional threat/financial frauds if the platform/operations, recon, settlement, etc., are managed in the same manner as standard UPI framework.

Further, it is an innovative and strategic step to link credit card with UPI, as it will promote the ultimate mission of digital India whilst promoting transactions through UPI. Now a consumer who wants to pay using his/her credit card can do it via UPI, with credit card being a back-end instrument. It will not only accelerate digital transactions but will also affect the average ticket size of the transaction. At present, the average UPI ticket size is Rs1,600 per transaction while that of a credit card is around Rs4,000. So, now with this development the UPI ticket size is likely to go up somewhere around Rs3,000- 4,000.

Deepti Sanghi, Co-Founder and CEO, Kodo, said: "RBI has offered a lucrative solution of synchronising credit cards on UPI platforms. This move will encourage the reach and utility of both credit cards and UPI. The acceptance infrastructure for credit cards can dramatically increase as merchants will be able accept credit card payments over their UPI accounts."

A number of our corporate card customers have requested for the ability to link their cards to UPI to be able to make all kinds of payments related to their company expenses seamlessly, he said.

However, since there is no MDR charged to merchants for UPI payments, there is an open question of how will credit card issuers cover their cost of capital and how will the underlying infrastructure support this. According to Sanghi, "We are confident that the RBI, the banks and the NPCI will collaboratively formulate a directive, keeping all essential factors in mind."

Today many merchants don't have credit card PoS terminals especially in semi urban and rural areas but all these have UPI QR code based acceptance. All such merchants will be able to accept credit payments via UPI. As well as many customers like using credit card for its reward benefit and like to use UPI for its ease of use as well as security. Thus, now credit card on UPI brings best of both the worlds.