Behind the plastic smile

The linking of RuPay credit cards with UPI is a game-changer, but pain points remain

- Raghu Mohan

Come September, and millions will be able to buy whatever they've set their hearts on and pay through RuPay credit cards linked to the Unified Payments Interface (UPI).

The merchant discount rate (MDR) has been set at 2 per cent of the transaction size, of which 1.5 per cent will go as interchange towards the cardissuing bank, with the rest (50 basis points) being shared as fees with RuPay and the acquiring entities - be it banks, or non-banks like Mswipe Technologies and Paytm.

It will lead to exponential growth in RuPay credit-card issuances, but a raft of issues may need to be seen afresh, given the inter-linkages.

Will smaller merchants agree to cough up the MDR? After all, the UPI is a toll-free highway. The huge spurt in UPI transactions masks the fact that a good percentage of them is declined, as the system can't take the load. A related issue is what happens to buy now-pay-later (BNPL) firms.

Then there's the elephant in the room: should there be zero MDR on RuPay debit-card transactions with a ticket-size of up to ₹2,000? And should UPI transactions continue to be free for all time to come

In the situation room

The July 2022 issue of the Reserve Bank of India's (RBI's) monthly Bulletin says there were 76 million credit cards in circulation in May, compared with 923 million debit cards. These numbers are to be juxtaposed against the nearly 570million customers with credit bureau histories. A shade over half of the credit cards resides in the wallets of a sub-segment of cardholders. Clearly, even the most aggressive retail banks are carpet-bombing a small pool of customers.

A breakdown of the 76 million credit cards by payment network is not available in the public domain, but senior officials in the business say Visa's share is nearly 70 per cent, with MasterCard accounting for the bulk of the rest. Rupay credit cards are estimated at around one million.