As part of the development and regulatory announcements made in RBI monetary policy, a key item was enabling the linking of UPI ids with credit cards. What does it really mean and would it make a big difference? Will it expand the base? But first, what exactly does this imply?
Linking credit cards with UPI
Under the extant RBI regulations, only the bank accounts are allowed to be linked to the UPI ids. Now, the RBI has announced that even credit cards will be allowed to be linked to the UPI ids. The UPI id is an email id used to identify a unique bank account. One can get or pay to a simple id like “[email protected]” and the funds are reflected directly in the bank account. It is that simple. Now that facility is available to credit cards.
What does this really mean and how does it makes a difference in operational terms. Now people can pay using their credit cards, but without having to swipe the card. How then do they authenticate the payment? It can be initiated with the help of the UPI id linked to the credit card account and authenticated either with a mobile OTP code or it can also be authenticated with a quick response or QR code. Either way, the person need not carry the credit card or swipe the card at the POS machine. It is done electronically using mobile phone verification. It makes the entire process of credit card payments easier, quicker, smarter and a lot more safe and secure.
What is in it for credit cards?
For credit cards, it is all about gaining access to a massive market. Currently, despite their existence for 40 years, the credit cards in India number just about 7 crore or about 5.5%. The monthly volume of transactions via credit cards is just about Rs1 trillion while UPI has touched Rs10.5 trillion in just about 5 years of its existence. This is not just because UPI is simpler, but also because for a credit-averse Indian population, it is a prudent choice. By enabling linking UPI ids to credit cards, a chunk of the credit card transactions will also be pushed via UPI and help credit cards expand. That will only boost the digitization of transactions.
It will not happen overnight
While the idea is good, it is not going to happen overnight. For starters, it is still a work in progress and the RBI has just about asked the NPCI to make needed amendments and readiness of specs to enable the linking of credit cards with UPI ids. Also, the RBI will only permit the linking of RuPay cards to begin with, although the scale may be visible only after the other large franchises like Visa and MasterCard are also looped in. But it is a good start. It is always safer to use UPI with multi-level authentication rather than exposing your card to the risk of spoofing, splicing etc. MDR and other costs would be the issue, but that can be sorted out.
Do you think this would be a healthy start to greater digitization?