Governor of the Reserve Bank of India (RBI) Shaktikanta Das Tuesday officially unveiled the UPI on RuPay credit cards and UPI Lite for feature phones, in addition to announcing that the Bharat Bill Payment System (BBPS) will allow cross-border bill payments.
Punjab National Bank, Union Bank of India and Indian Bank will be the first to implement UPI on RuPay credit cards through the Bhim app, while Federal Bank, together with UAE’s Lulu Exchange, will be the first to go live with BBPS cross-border bill payments.
Similar to those found on digital payment apps, UPI Lite is an “on-device wallet” aimed at enabling offline transactions of smaller values, while BBPS will enable “inbound” cross-border bill payments.
RuPay credit cards will be linked to a Virtual Payment Address (VPA) i.e. UPI ID, thus directly enabling safe and secure payment transactions. The initial operational phase will focus on extracting actionable learnings that will be used to refine the proposal in later phases to scale up use, NPCI said.
During the launch, the Governor of the RBI was accompanied by Biswamohan MahapatraChairman of National Payments Corporation of India (NPCI), and Nandan Nilekan, Non-Executive Chairman at Infosys.
High MDR is unlikely on UPI-RuPay credit cards
While UPI transactions via debit cards linked to RuPay incur no fees, the MDR (Merchant Discount Rate) – a fee charged to merchants for processing payments made via UPI, digital wallets, as well as debit cards debit and credit – was capped at 0.9% for all other debit cards (Visa/Mastercard). On the other hand, the MDR for UPI transactions via credit cards has not yet been announced.
However, according to reports, it could attract 2% MDR (1.5% will go to the issuing bank, while the rest will be shared between RuPay and the acquiring entity).
For credit card issuers, MDR has been one of the main ways to make money, as credit cards typically have an MDR of 2-3%.
“Everyone thinks that UPI’s success is due to small traders. We will continue to support them and cannot disturb them,” said Denny V Thomas, NPCI Product Manager NETC and AePS.
Denny said the entity has been in discussions with various industry players since it was announced that it would link RuPay credit cards with the UPI platform.
“There would be a business model around that. It’s a credit-based business at the end of the day,” he added.
The MDR is important to credit card companies because of a 45-day interest-free credit period and an unsecured transaction, echoed industry experts.
Seeking to prepare the ecosystem, the spokesperson said the NPCI was working to build the infrastructure to reduce UPI-based fraud in addition to reducing failure rates. “Banks must also follow the same path. They’ve already done this for debit cards,” Denny added.
During the discussion, questions were raised regarding the “concentration of power (payment apps)” due to the lack of fees on UPI transactions. Industry stakeholders have argued for a “tiered structure” where MDR fees could be based on transaction volume or ticket size.
In August this year, the RBI launched a discussion paper on payment fees and requested comments by October.
Denny also suggested gradually allowing other credit card issuers and networks (like Visa, Mastercard, etc.) to link with UPI.
Currently, credit cards are accepted by 2-4 million merchants, but with RBI’s decision to approve credit card payments for UPI, all 50 million UPI merchants can be part of the credit economy. “Customers are at the center of everything we have built. Customer onboarding is the priority, regardless of card network. It has to be dealt with first and the rest will follow as we (including other issuers) all grow together,” Denny said.