The RBI Plan to Link Credit Cards With UPI : Daily Current Affairs

Relevance: GS-3: Indian Economy and issues relating to planning, mobilisation, of resources, growth, development and employment.

Key Phrases: Unified Payments Interface (UPI), RuPay, digital payments, Merchant Discount Rate, IMPS infrastructure, Peer to Peer.

In a move that will broaden the scope of digital payments in the country, the Reserve Bank of India (RBI) has allowed credit cards to be linked with the Unified Payments Interface (UPI) for payments.
The integration will first begin with the indigenous RuPay credit cards.

UPI has become the most inclusive mode of payment in India with over 26 crore unique users and five crore merchants on the platform.
In May, UPI processed 5.95 billion transactions worth over Rs 10 trillion, a record high since its launch in 2016.
NPCI is looking to soon process a billion transactions a day.
Currently, Punjab National Bank (PNB), IDBI Bank (IDBI), Union Bank, State Bank of India (SBI), Bank of Baroda, Federal Bank and Saraswat Co-operative Bank provide the RuPay credit card.

Unified Payments Interface (UPI) is a system that powers multiple bank accounts into a single mobile application (of any participating bank), merging several banking features, seamless fund routing & merchant payments into one hood.
It also caters to the “Peer to Peer” collect request which can be scheduled and paid as per requirement and convenience.
It is an instant payment system developed by the National Payments Corporation of India (NPCI).
UPI is built over the IMPS infrastructure and allows the transfer of money between any two parties' bank accounts.
At present, making UPI payments via a debit card or saving account is free.
The volume of digital payments in India has increased by 33% year-on-year (YoY) during the financial year (FY) 2021-2022. NPCI’s unified payment interface (UPI) was the most used platform for digital transactions during the period, accounting for 452.75 crore transactions with a value of ₹8.27 lakh crore, until the end of February.

National Payments Corporation of India (NPCI) is an umbrella organisation for operating retail payments and settlement systems in India.
It is an initiative of Reserve Bank of India (RBI) and Indian Banks’ Association (IBA) under the provisions of the Payment and Settlement Systems Act, 2007, for creating a robust Payment & Settlement Infrastructure in India.
The NPCI is a not-for-profit organisation registered under Section 8 of the Companies Act 2013. It is an initiative of Reserve Bank of India and Indian Banks’ Association.

RuPay is the first of its kind global card payment network of India with wide acceptance at ATMs, Point of Sale Devices, and e-commerce platforms across the country.
It was launched in 2012 by the Reserve Bank of India (RBI).
The name RuPay is derived from ‘Rupee’ and ‘Payment’ which emphasises that it is India’s very own initiative for VCard (Virtual Card) Payments.
RuPay is an initiative of the National Payment Corporation of India (NPCI), the umbrella organization that powers retail payments in the country.

IMPS stands for Immediate Payment Service in Indian banking system terminologies.
It is a money transfer mechanism made available by the apex bank of the country, the Reserve Bank of India and the National Payments Corporation of India (NPCI).
Initiated in 2010 by the NPCI with the help of a pilot project with 4 major banks, IMPS has now grown to 150+ banks.
The major feature of IMPS is that it is available at all times for usage. It transfers funds instantly
The transaction charges of this platform are also very nominal and the transfer limit is also considerable, approximately Rupees 5 lakhs per day. Moreover, IMPS is available on mobile too which makes it super convenient.

Credit card usage zooming up: Industry experts believe that the linkage of UPI and credit cards could possibly result in credit card usage zooming up in India given UPI’s widespread adoption.
Opens up avenues: 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.
Adoption by banking: 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.
Additional convenience: This will provide additional convenience to the users and enhance the scope of digital payments.
Wider choice of payments: The basic objective of linking credit cards to UPI is to provide a customer with a wider choice of payments.

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.
According to a norm that has been in effect since January 2020, UPI and RuPay attract zero-MDR, meaning that no charges are applied to these transactions, which is a key reason behind the prolific adoption of UPI both by users and merchants.
The norm has faced pushback from the payments industry,
The industry has argued that it limits the aggregators’ ability to “invest in and maintain the financial infrastructure” of the payment ecosystem that they have built.
Applicability of zero-MDR on UPI could also be a reason why other card networks such as Visa and Mastercard may not have been onboarded to UPI for credit cards yet.

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.

Even as the central bank increases benchmark rates to rein in the surging inflation, a move like this could be aimed at boosting credit-led consumption in the country.

Mains Question:

Q. The Reserve Bank of India has proposed linking credit cards with UPI. What is the significance of the move? (150 words).