Credit card on UPI: NPCI in talks with banks for a pilot project

The National Payments Corporation of India (NPCI), the umbrella organization for retail payments in the country, will launch a pilot project of activation of credit cards on the unified payment interface (UPI) over the next two months. The entity is in talks primarily with public sector card companies such as SBI Card, PNB Cards and Union Bank to begin testing, according to a source familiar with the matter.

Currently, UPI allows linking bank accounts by mapping a linked bank account to a mobile number. This can be done through third-party apps such as Google Pay, Amazon Pay, PhonePe, etc. or apps from banks such as SBI, ICICI Bank, Axis Bank, HDFC Bank, etc. Last month, the Reserve Bank of India (RBI) authorized credit card linking with UPI, and said that initially, Rupay credit cards will be linked to UPI with the aim “to provide additional convenience to users and improve the reach of digital payments”.

“NPCI is trying to get it alive by the end of August or September. It will start with a pilot project, with a few banks that are ready to start. Some players like SBI Card, PNB Cards, Union Bank have shown interest, in addition to Axis Bank on the private side,” an NPCI official said, adding that private banks have not been so open to the project. than their public sector. counterparts.

As part of the pilot, NPCI will integrate UPI AutoPay functionality into credit card transactions, with the goal of reducing the risk of credit card payment default.

“Banks today cannot issue a physical credit card to someone with a lower credit limit due to the issuance cost involved. This is why the digital approach is necessary. With UPI AutoPay, “it adds a lot of value. With it, distribution and collection costs are almost zero. Technically, banks can increase credit once they understand consumer behavior and broaden their base,” the official added. The UPI AutoPay allows users to make recurring payments on the UPI platform for smaller amounts.

Linking credit cards with UPI will allow consumers to make small payments on credit issued to them through bank-issued credit cards. “Growth is through credit, not your own money, as various economic models have shown over the years. It will enable that,” a banking executive said.

However, industry experts at the time pointed out that the adoption of credit cards through UPI will depend on the dynamics of the MDR, since much of the adoption of UPI at the bottom of the pyramid was possible because these merchants have to pay a zero discount rate (MDR) — a commission payable by merchants to card issuers.

The exec added that NPCI will likely come up with a model where a fee is levied on larger ticket size transactions, while waiving fees for smaller transactions to drive adoption by smaller merchants like online sellers. roadside, grocery store owners, etc.

UPI has become one of the most popular payment methods in India with over 26 crore unique users and 5 crore merchants on the platform. In May 2022, around 594 crore transactions amounting to Rs 10.4 lakh crore were processed through UPI.