India's Three-Party Payment Company - India's Payment Platform UPI to Connect with RuPay Credit Cards

　　Indian payment platform UPI to connect RuPay credit cards

　　The Indian payments industry processes over 2.6 billion digital payment transactions every day, two-thirds of which are processed by UPI. Recently, the RBI allowed connecting RuPay credit cards to UPI, will this move drive further growth of UPI?

　　With over 260 million unique users and 500 million merchants, India's UPI platform has become a ubiquitous payment method. in Q1 2022, there were 9.36 billion person-to-merchant or P2M transactions amounting to Rs. 10.25 trillion through PPIs such as debit, credit, mobile wallets and prepaid cards as well as UPI payments.

　　UPI P2M transactions have become the most preferred mode of payment for consumers, accounting for $64% in volume and $50% in value.The growth of UPI transactions has had an impact on other retail payment methods, especially card transactions.The key reason for UPI's popularity is the zero merchant discount rate or MDR.The MDR is a fee calculated as a percentage of the transaction value, which the merchant pays to the bank for processing the payment.RuPay debit cards also have no MDR, while other debit cards have fees ranging from 0.4% to 0.91T. Credit cards have no cap on MDR. payments.RuPay debit cards also do not have an MDR, while other debit cards have fees ranging from TP3T 0.41 to TP3T 0.91.Credit cards have no upper limit on MDRs, which range from TP3T 2 to TP3T of the transaction.RuPay credit cards typically have lower MDRs than Mastercard or Visa credit cards.

　　Currently, UPI facilitates transactions by linking savings or current accounts through a user's debit card. The RBI last month allowed the linking of credit cards to UPI, a facility that was initially available for cards issued on the homegrown RuPay network.The NPCI and the banks have reached a consensus on the MDR for credit card transactions on RuPay-UPI, agreeing on an MDR of 21 TP3 T. Of this, 1.51 TP3 T will go to the issuing bank, while the rest will be shared with RuPay and acquirer entities.

　　Will MDR discourage merchants from adopting UPI for transactions on RuPay credit cards?Bhaskar Chatterjee, vice-president, product management, Ezetap, said that MDR helps card-issuing banks to cover credit risk. Merchants with PoS machines won't mind the new mechanism and will adopt it once merchants see its value.Sagar Agarvwal, co-founder and managing partner of Beams Fintech Fund, believes that credit card payments on UPI will facilitate faster consumer adoption and merchants will accept more customer demand.

　　Although 500,000 merchants have joined the India Pay UPI platform, there are just over 600,000 PoS terminals in use in India. Merchants with PoS machines can easily sign up for credit card UPI payments. Extending adoption to smaller merchants will require protecting them from MDR. They will also wait to see how consumers accept the new mechanism and how large merchants receive it.

　　In the first phase, the low penetration of RuPay credit cards may hinder adoption. Of the more than 7.3 million credit cards in circulation, RuPay cards are estimated to be only about 1 million. Even so, credit card payments through UPI have the potential to reshape the credit card issuance and usage landscape in India.