Credit Card Payments On UPI: Wherefores And Whys

A dissection of why credit card payments through UPI may not be as convenient, accepted, and trusted.

RBI has proposed linking credit cards (CC) to UPI. It'll, to start with, allow Rupay credit card payments through UPI rails. And in the due course, allow other CC issuers to come on board. Credit on UPI has been on the fintech industry's wish-list for a long time. But it must welcome this dessert-worthy news with a pinch of salt. Here's why.

First, UPI may not make CC payments more convenient for small-value transactions. CC payments (on card network rails) below Rs. 5000 don't need any additional factor authentication (like OTP). So, to pay a merchant, I simply need to tap my NFC enabled CC on a card machine. If I use UPI for CC payments, I may have to enter my UPI PIN (to enable payments). Which I'd rather not. Also, UPI is typically used for small-value payments. Only 6.33 % of users (who want to make person to merchant or P2M payments) use UPI for transactions over Rs. 2000. So, in all likelihood, the majority of UPI users (like me) may prefer tap-and-go CC payments (over CC payments through UPI).

Second, Merchant Discount Rate (MDR) on CC payments may impact merchant acceptance (of CC payments through UPI) negatively. Zero MDR is the key enabler of UPI's ubiquity. Merchants accept UPI payments without any additional costs. But MDR for CC payments ranges between 0.4 % to 3 % (of transaction value). It's unlikely that the Government will extend its zero MDR policy to CC payments on UPI. Because this'll make businesses of CC networks, issuers and intermediaries (like payment aggregators) unviable. It's also unlikely that merchants will loosen their purse strings to cover this cost (for CC payments on UPI). That's what, at least, appears to be the industry sentiment.

Third, CC payments through UPI may not command the same trust as CC payments through card rails. One of the reasons for the popularity of CCs is effective redressal of user concerns. As a Visa or MasterCard CC user, I can dispute charges on my CC. The card issuer refunds my money if the CC transaction is fraudulent, and I'm not at fault. But, the dispute resolution mechanism for UPI and Rupay CC transactions is not as efficient. NPCI has in fact asked participants in the UPI ecosystem to implement online dispute resolution from 30 September 2022. But it remains to be seen if this'll match-up to the efficient dispute redressal mechanism for CCs, which has been tried, tested and trusted over the years.

So, I, along with the rest of the industry, wait for the RBI and NPCI to iron out the kinks before I consider my wish granted.

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