RBI’s UPI-credit card link plan doesn’t add up for banks and fintechs


Bangalore/ Mumbai: The central bank’s decision to open up credit card transactions on the Unified Payments Interface – India’s preeminent digital payments network – raises a host of challenges ranging from lack of clarity on discount rates merchants confused about merchant authentication and know-your-customer (KYC) standards, several fintech and banking industry executives told ET.

While the announcement – Wednesday – by the Reserve Bank of India to allow Quick Response (QR) based payments via RuPay cards, which are backed by the National Payment Corporation of India (NPCI), is expected to result in a five – times more credit on the UPI platform, industry sources estimate it will take at least six months for a full rollout of credit card payments.

Currently, around 50 million people are benefiting from instant loans at banks, non-bank financial companies (NBFCs), and digital lending fintechs. This market is expected to reach 250 million users, said senior banking executives who spoke on condition of anonymity.

Calling “the fundamental objective of linking credit cards to UPI as (a means) of providing customers with a wider choice of payments”, T Rabi Sankar, Deputy Governor of RBI, said: “How the Pricing will work, which we’ll have to see as we move forward.

Currently, UPI payments are routed through debit cards and bank accounts, with the RBI now allowing the introduction of RuPay credit card payments.

Industry members are of the view that once the final operational guidelines are issued shortly by the banking regulator and the NPCI, it will require a significant upgrade to the current UPI infrastructure of all technology vendors. financial.

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“The Merchant KYC (know your customer) guidelines are much lighter for UPI operators, compared to the credit card ecosystem,” said Nikhil Kumar, co-founder of Setu, a fintech infrastructure provider, adding that ” from a technology perspective, UPI apps might have to upgrade their KYC modules, (while) the challenge might be for cohorts where physical KYC needs to be done.

“There must be incentives built into the system for these payment companies and merchants to re-KYC,” he added.

The MDR challenge

However, the overriding challenge, according to several industry players, will be the issue of the merchant discount rate (MDR) for credit card payment on UPI and a final consensus on who will bear the cost of the MDR – the user, merchant or bank.

“People are still unsure about the exchange. Acceptance power will not be unlocked unless the exchange is zero,” said Nitin Gupta, founder and CEO of Uni Cards, who posits that “there could be a tiered pricing model where a transaction up to a certain amount will be free, after which there might be a fee.

“Acquiring a merchant is a significant cost to the issuer and merchants cannot be charged if this use case is to grow. So customers might have to bear the final cost,” he added.

UPI extends lead on cards_Graphic_ETTECHETtech

The MDR debate comes even as the payments industry, including banks, is caught up in a fight over the exchange to be charged for using UPI as a payment instrument to load e-wallets, so that the interoperability guidelines for digital payment instruments come into force.

Third-party apps on the UPI platform were stripped of MDR, after the government mandate to remove the benefit on UPI and RuPay transactions, effective January 2020.

“The real challenge is that the industry needs to come to a consensus on the MDR, which can be decided by the NPCI Steering Committee and will take some time to be operational. The exchange on the wallet is still unresolved” , said Kumar of Setu.

Consent Architecture and KYC Upgrades

Executives from point-of-sale fintech companies and UPI payment apps, who spoke to ET, pointed out that merchants accepting credit cards must go through a much stricter KYC process on the part of the acquirer. This includes providing a company GST number in addition to other things, to streamline chargebacks and thwart other fraudulent payments. Full KYC requires proof of business, permanent account number (PAN) card and proof of address

As a result, current UPI third-party apps, including PhonePe,

and Google Pay will have to undertake a re-KYC process for merchants and upgrade their technology layer for rigorous KYC, they said.

Additionally, the investment required to leverage credit card-related UPI payments is not limited to third-party applications with an offline footprint, but also large card network operators such as Visa, RuPay, and MasterCard, which will need to work with these companies to upgrade the whole. rapid response (QR) infrastructure.

Card giant Visa is already working with digital payments provider Paytm to allow users to make card payments by scanning QR codes.

Calling the decision to link credit cards on UPI a “good decision, in principle,” said Subhash Chandra Garg, India’s former finance secretary, “but whether it’s a game-changer or not, we have to wait and watch,” he said

“There are challenges like the friction of MDR, who you pay to, likewise there has been an OTP authentication system for UPI and if that will continue. These issues need to be sorted out, work is still in progress” , he added.

Digital lending boom

Meanwhile, several line of credit fintechs such as Slice and Kissht have stepped up their payment products to ensure customers get a wider acceptance network for their line of credit. Last month, Slice said it launched UPI on its app to combine the benefits of credit-based payments. While Kissht, which raised $80 million this week, launched its buy-it-now-pay-later card to create recurring payment behavior among customers and use their credit even for small offline transactions. such as groceries.

“Lending fintechs have been trying to figure out how they can help customers use credit through UPI. Several (of them) tried to allow payments to one QR by credit, but RBI did not allow it. This has been on the minds of several fintech lending companies; however, no one has been able to operationalize it. We might have a similar situation now,” a payment industry executive said on condition of anonymity.

On Wednesday, RBI said UPI has become the most inclusive payment method in India with currently over 26 crore unique users and 5 crore merchants on board the payment infrastructure.

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