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UPI and Credit Cards, Match Made in Heaven

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Unified Payments Interface (UPI) has been a game-changer for digital payments in India, providing a fast, secure, and convenient way to transfer funds between bank accounts. The rapid adoption of UPI can be attributed to its ease of use, low transaction fees, and wide availability of UPI acceptance infrastructure.

The Rise of UPI

As of January 2023, UPI recorded the biggest year-on-year growth of 74.1% in transaction volume, according to the ‘2023 Global Payments Report’ by FIS. This growth has been driven by the increased acceptance of UPI among small merchants who previously only accepted cash payments. UPI has played a significant role in making India a leader in digital payments globally, not just in the region.

The rise of UPI in India is driving consumers away from cash and helping to drive financial inclusion. Cash payment is still prevalent in India, but most peer-to-peer transactions are increasingly done through UPI. While digital wallets are expected to rise in transaction value by 88% by 2026, cash is expected to decline by 34% in transaction value by 2026.

The Matchmaking

To further increase the base of UPI users, the National Payments Corporation of India, also known as NPCI, recently launched a new feature that allows Rupay credit cards to be linked with the UPI interface. Credit card issuers are now offering Rupay credit cards to UPI users to increase credit card spending and move customers away from using bank accounts for transactions.

On adding a debit or a credit card to UPI apps, users can make payments by scanning a QR code and choosing the added card as the payment method, with a one-time password sent to their registered mobile number to complete the transaction. Linking a Rupay credit card to the UPI platform is a straightforward process that takes just a few minutes. However, integrating Rupay credit cards with UPI is currently available on only a few UPI apps. Other apps like Google Pay support Mastercard and VISA cards from selected banks.

The Perfect Match, why?

The integration of credit cards with UPI has revolutionised the digital payment landscape in India. It has opened up a world of possibilities for customers, providing them the convenience and flexibility of using their credit cards for any UPI-enabled transaction, including at small merchants and vendors.

One of the key advantages of linking credit cards with UPI is that customers no longer need to carry their cards physically. This significantly reduces the risk of fraud and loss. This integration also helps in activation and engagement, as customers across demographic profiles will have several new opportunities to use their cards. UPI apps like Google Pay, PhonePe, and others offer features like AutoPay and dispute resolution, making transactions even more seamless for customers.

The integration of credit cards with UPI offers convenience, but there are also some risks involved. Overspending is a concern as all spends are charged to the credit card. There are a few other restrictions, such as the inability to transfer money to other individual UPI IDs or pay someone else’s credit card via UPI.

Spending at smaller merchants does not bring any interchange income, and there is a risk of losing interchange income from larger merchants. Enhanced fraud risk management is necessary to integrate cards with UPI due to the new set of use cases it creates.

But overall, the pros outweigh the cons. By adopting the right approach, banks and financial institutions can leverage this game-changing technology to offer a better customer experience and drive increased usage of credit cards in India.

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