RBI proposes linking credit cards to UPI
GS Paper - 3 (Economy)
The Reserve Bank of India (RBI) has proposed to allow the linking of credit cards to the UPI platform, Governor Das said as he announced a rate hike. At present, UPI facilitates transactions by linking savings or current accounts through users' debit cards.
What is the significance of the move?
- 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).
- 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.