Credit products may outdo RuPay on UPI

Shashank Didmishe

Enabling RuPay credit card transactions on the UPI (unified payments inter- face) platform is a promising proposition that card issuers must consider given the ecosystem could be much bigger than the current one. However, experts caution that fintechs are developing credit products on the UPI and it is possible these could become popular than credit card products. Although very few players currently offer ‘credit on UPI’ through a wallet form factor, experts believe this could become popular.

Critically, for UPI-RuPay transactions to take off meaningfully, the merchant dicount rate or MDR needs to go, or at least reduced meaningfully, according to banks and fintechs. “Small merchants like kiranas will not want to absorb MDR charges, which range between 2% and 2.5%, so some other stakeholder will need to pick up the tab,” said the CEO of a payments firm. Experts suggest that if varying formats of UPI are created that either allow or disallow credit cards, it would give merchants an option.

They also point out transaction process in terms of whether it would be routed via three switches – NPCI, RuPay and the bank – or just two would be critical. “The UPI process is simple and seamless and that’s why it works so well. If the process involves just the UPI switch, that would make it relatively simple,” said a senior banker. He added that if the RuPay switch cannot be bypassed, alternations will need to be made for the Bharat QR code (quick response), and changing codes for 25-30 million merchants would be a big exercise.

Analysts at Kotak Insitutional Equities observed that fresh agreements with the merchants (181 million UPI QR codes as of April 2022) through the network provider imply that there could be some push back if the flow moves more towards credit over traditional UPI.

There is also the question of whether a new KYC compliance would be required.

“When enabling credit card payments, the KYC process tends to be a lot more stringent than it is otherwise,” said a top executive from a payments firm. That apart, frauds and charge-backs would come into play when credit cards are linked with the UPI, increasing the risks manifold.

Nonetheless, Ansuman Deb at ICICI Securities believes that while there are questions related to MDR charges, and whether Visa and Mastercard will also be gradually allowed, if successfully adapted, the entire point of sale infrastructure can face a threat. In terms of volume, Rupay’s share of credit and debit card transactions was 24% in FY22,while in value terms it was 14% share, according to Goldman Sachs.