Credit card-linked UPI payment via QR code finally begins with RuPay domestic credit cards

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In a first of its kind, the government-backed RuPay credit card has gone live with a Unified Payment Interface (UPI), which means scanning QR codes at merchant outlets for goods and services at the instead of using a point of sale terminal.

In his opening remarks, Nandan Nilekani, Non-Executive Chairman of Infosys, said the Reserve Bank of India (RBI) has become a global leader in combining regulation and innovation.

“I see the launch of UPI and RuPay credit cards as the first step for credit on UPI. It’s a very sensible first step to test the waters of credit. I’m sure they (RBI) will open up to more forms of credit like BNPL and others,” Nilekani said.

In June, the RBI authorized the linking of RuPay credit cards to UPI.

The Punjab National Bank, Union Bank of India and Indian Bank are the first three banks to have UPI links in place, while many more are expected to join shortly.

RuPay credit cards, which are primarily issued by public sector banks, will be linked to a virtual payment address via UPI ID, enabling instant scanning at merchant outlets that accept QR codes. Currently, RuPay credit cards hold a one-fifth market share in terms of spending in India.

“There will be no MDR on UPI related credit transactions but a small interchange fee,” said Atul Kumar Goel, MD&CEO of Punjab National Bank.

The credit card issuing bank will recover the interest component, in particular the merchant’s interest for the interest-free credit enjoyed by the customer. However, Goel declines to elaborate on the fee component.

So far, the UPI is linked via the customer’s debit card to their savings or current account. There is no MDR on UPI debit transactions.

On credit transactions, an MDR is taken by the acquirer of the point-of-sale terminal from a merchant. The card network (Visa/MasterCard) fixes the MDR distribution between all intermediaries of the POS acquirer, the card issuer and the card network.

This groundbreaking measure will not only expand credit in small towns, but also impact the business model of global card networks.

First, there will likely be credit expansion as the UPI linking of credit cards will allow purchases at a large number of merchant outlets with a QR code. In the past, expensive point-of-sale terminals have hindered the growth of credit cards. “You cannot find a POS machine in rural and semi-urban areas. Now, with the RuPay credit card, credit will be available to a wide population,” said Biswamohan Mahapatra, chairman of NPCI.

“There are also many merchants today who don’t have a POS terminal but have a QR code, where a credit card is not usually used. So this whole market will open up in a very important,” said Mandar Agashe, Founder. and CEO of Sarvatra Technologies.

People lack credit in India. The ratio of credit to GDP is in the 50s while counties like the United States have a ratio of 216%. China is at 182%.

Second, larger networks like Visa and Mastercard will also be forced to join the UPI bandwagon. Credit cards other than RuPay typically charge an MDR of up to 2-3% of the transaction value. Lower interchange fees in RuPay-UPI will make it more popular with the masses.

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Elaine R. Knight