Linking of the Unified Payments Interface with RuPay credit cards has given a major push to these domestic cards. As per two industry insiders, around 30% of new credit cards issued in the country are now on the RuPay network.
Major American card payment firms, Visa and Mastercard, dominate the domestic credit card market.
“Large banks are issuing RuPay credit cards more proactively, given the high customer demand. Even co-branded cards are now available on the RuPay platform, which is driving up new issues,” a senior banker told ET.
Queries to the National Payments Corporation of India (NPCI), which launched the RuPay payment card scheme, remained unanswered until Wednesday. However, even though card issues have increased, transaction growth has not maintained pace, according to industry experts.
Linking credit cards with UPI can also help individuals get instant loan with ease. Banks are concerned of losing their valuable credit card customers to the payment apps that work on UPI, they said.
“The credit cards in the UPI ecosystem will mostly work on third-party apps like Google Pay and PhonePe. If customers add their credit cards to these apps, they may avail cross-selling insurance or personal loans to their customers. Banks fear they will lose sight of their customers due to this,” a senior payment industry insider said, on the condition of anonymity.
This is a challenge banks are facing across all their UPI payments. Consumers are using their bank accounts for payments, but making the transactions on third party apps, resulting in banks losing track of their customers to a large extent.
“This is a broader challenge for banks, and not just because of UPI on credit,” said Ashish Goyal, co-founder of fintech startup Fibe, which issues co-branded RuPay credit cards with Axis Bank. “I think this is a challenge they are solving for UPI itself. As the top three apps are controlling almost the majority of the UPI traffic, banks would also want to get their share.”
In Goyal’s view, eventually, these cards will gain popularity, just like the initial slow rate of adoption for UPI.
The other issue is the customer’s habit of using UPI, every time.
According to data from the NPCI, the average size of merchant transactions on UPI is Rs 1,400 to Rs 1,500. Typically, customers use their savings accounts for smaller value transactions. However, they may also start paying their monthly installments on apersonal loan app using credit cards linked with UPI.
“For small-value payments, people are accustomed to using their UPI handle through the bank account. So, a credit card doesn’t necessarily come to mind for smaller transactions. From that perspective, it is not a right fit in the current scheme of things,” Ramakrishnan Ramamurthy, the executive vice president of French payments company Worldline India.
RuPay credit cards got a major boost in June 2022 when the RBI permitted the linking of RuPay credit cards with UPI, making it the only UPI-linked card network. In October 2023, NPCI announced that interchange fees would apply on UPI-linked credit cards transactions above Rs. 2000, with certain exemptions for small merchants.
In March this year, the RBI directed card issuers to offer customers multiple network options at the time of issue and prohibited exclusive arrangements that prevent customers from using other card networks. This mandate has potentially benefitted the homegrown RuPay card network.
All these policy changes created the ground for the ecosystem’s expansion. However, the charges on credit card-based UPI transactions confused the market, where UPI transactions used to be free.
Currently, the Merchant Discount Rate (MDR) is levied on UPI-linked RuPay credit card transactions above Rs 2,000. Below Rs 2,000, there are no charges on such transactions. The MDR is a fee charged by banks for processing transactions. These charges are often market-determined.
“Most banks are still testing how the RuPay credit card on UPI will go about. Except for a few like the Bank of Baroda or HDFC Bank, not many banks have started issuing cards widely. Mostly, banks are giving it to their existing customers,” Mohit Bedi, co-founder of credit on UPI startup Kiwi, said.
In this credit card ecosystem on UPI, 30 times more merchants can potentially be integrated than those with point-of-sale terminals. Bedi said this could offset the lower interchange fee from RuPay card transactions compared to Visa and Mastercard.
‘
