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?

  1. 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).
  2. The linkage of UPI and credit cards could possibly result in credit card usage zooming up in India given UPI’s widespread adoption.
  3. 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.
  4. 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.
  5. This will provide additional convenience to the users and enhance the scope of digital payments.

What could be the hurdles?

  1. There are some regulatory areas that would have to be addressed before the linkage happens.
  2. For instance, it is not clear how the Merchant Discount Rate (MDR) will be applied to UPI transactions done through credit cards.
  3. 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.