Why RBI Allowing Credit Card Transactions On UPI Is Great News

Photo by Clay Banks on Unsplash

UPI-Credit Card linking will be a reality soon. In a first, the Reserve Bank of India (RBI) has proposed to allow the linking of credit cards on UPI platforms – a move that experts say has the potential to expand the market for credit by nearly 5 times.

The new system will be introduced first by linking RuPay credit cards to UPI and eventually onboarding other cards on the platform.

Presently, shoppers are bound by debit cards for UPI payments. However, the love for shopping with credit cards has been increasing by the day for Indian shoppers. Spending on credit cards surged at a faster pace of 13% against an 8% growth in FY21 – which is good news for the central bank. 

While the prevailing market of instant loans is around 50 million, allowing credit card transactions through the UPI interface is set to provide almost all the 250 million users of UPI access to such credit. 

“UPI has become the most inclusive mode of payment in India with over 26 Cr unique users and 5 Cr merchants on the platform. In May 2022 alone, about 594 Cr transactions amounting to Rs.10.4 lakh Cr were processed through UPI,” said RBI Gov, Shaktikanta Das. Further, overall credit outstanding against credit cards was almost Rs.1.5 lakh Cr in April this year.

However, some fintech executives are worried and have asked the central bank to reevaluate. UPI has no monetization model, and this could be a problem since the credit card instrument operates on some of the highest merchant discount rates, which are split between banks and payment service providers. Maybe, the RBI should give it a thought after all.

Too long? Here’s a one-liner: UPI-Credit card linking to be a reality soon; RBI will start with RuPay Credit Card and later allow other cards to provide additional convenience to users and enhance the scope of digital payments. 

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