After Rupay, new credit options on UPI, such as BNPL, may boost demand

MUMBAI : Days after the National Payments Corp. of India launched Unified Payments Interface (UPI) via credit cards on the RuPay network, banks and fintech companies expect that UPI may be extended to other credit products, such as Buy Now Pay Later (BNPL), as well.

That apart, the industry also expects an increase in the issuance of credit cards, as transaction costs decline, and more customers start using the facility. “This will increase the issuance and usage of cards. As more people use credit cards, it would capture their credit history and that is going to enhance the use of cards in more markets," said a senior bank official, requesting anonymity.

Tech industry veteran Nandan Nilekani, too, pitched for more credit products on UPI while speaking at the Global Fintech Fest in Mumbai on Tuesday. “On the credit side, I personally see the launch of UPI and RuPay credit cards as the first step of credit on UPI," Nilekani, chairman of Infosys, and advisor to National Payments Corp. of India (NPCI), said. “As we go forward, and as RBI gets more confidence, it will open up to more forms of credit on UPI and therefore, there will be new native credit abilities on UPI, like BNPL, and so on," he added. The RuPay credit cards will be linked to a virtual payment address (VPA) or UPI ID, facilitating such payments, and allowing merchants to accept payments from credit card customers without a point of sale (PoS) terminal.

“Linking credit cards to UPI is a crucial step in increasing spending on credit cards, and allowing a wider set of merchants to accept a credit product. Since it will be UPI-based, merchants not having a PoS infrastructure can also accept credit card payments," a fintech industry executive said also seeking anonymity.

It would also help increase the ticket size of UPI transactions since customers typically use credit cards for larger spending than their debit accounts, the executive said. At present, about 50% of UPI transactions are less than ₹ 200.

While merchant discount rate (MDR) is not applicable for UPI-linked credit card transactions, bankers said an interchange fee may be charged. For credit cards, 2-3% MDR is charged for every transaction value and is market-determined. MDR is paid by merchants to the bank, card network and point-of-sale service provider for all offline transactions and to the payment gateways for online purchases. MDR is also charged for RuPay credit cards, but not on the UPI transactions from bank accounts.

Experts said linking credit cards to UPI will increase purchases at merchant outlets with QR code, as well as on e-commerce sites, since high-cost PoS terminals have impacted credit card transactions. While this will bring transaction costs down, experts said usage will not increase if banks restrict UPI only for RuPay credit cards.

“UPI is already used in lending products in some form. Most repayments, or around 50% are used for credit cards and a lot in loans are done via UPI. While verifying identity of customers, many lenders use UPI to verify account details of borrowers. In that sense, it is already an integral part of the lending infrastructure," said Anurag Sinha, chief executive officer and co-founder, OneCard.

UPI merchant infrastructure is far bigger than credit card acceptance infrastructure, and many consumers are comfortable using UPI, he said.

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