Reasons behind RBI's move to link credit card to UPI

1. When you use a credit or debit card at a merchant’s POS machine.

2. The transaction amount and other details pass through secured payment gateways like Razorpay and reach the merchant’s bank.

3. These details are then processed forward by the merchant’s bank to the payment network such as Visa, MasterCard, RuPay, etc. 

4. The payment networks then forward the transaction amount and details to the card issuing company to verify them.

5. Once verified, the amount is debited to the merchant’s bank account from your bank account in case of using a debit card. In the case of a credit card, the amount is sent from the credit card issuing bank to the merchant’s bank account.

All of this happens in the backend and is a complex process considering there are millions of such transactions taking place every single day. But for us, it happens in a matter of seconds.

To maintain and keep this infrastructure up and running without any hiccups, payment networks like Visa and Mastercard charge merchants a small commission for every transaction processed through their network known as MDR.

The merchant discount rate is split between the payment issuer’s bank and the payment network in the form of an interchange fee and a switching fee.

While the MDR for debit cards can go up to 0.9% per transaction, the MDR for credit cards is usually anywhere from 1-3% per transaction and this is a very crucial source of revenue for payment networks and banks.

More and more people throughout India shifted to cashless and contactless payment methods. Among these methods, UPI took the limelight for its easy accessibility and ease of use for both paying and receiving money. 

The payment landscape has changed ever since the introduction of UPI in 2016. UPI or Unified Payments Interface allows you to transfer money directly from your bank account or debit card to another bank account without any MDR.

This made the payment method suitable for merchants to adapt quickly as they wouldn’t have to pay any extra fee and would receive the exact amount that was transferred.

Although a great move from the government to improve the digital payment landscape in India, the decisions took a toll on banks that had to suffer from a loss due to the lack of revenue they received from debit card MDR. 

This loss was still bearable for banks as the money being transferred was debited directly from the bank account of a person, meaning it was taken from money a person already had.

But if credit cards are to be used through UPI with no MDR, then it could be a huge risk for issuing banks and payment networks as there are chances of defaulters not paying back leading to much bigger losses. 

So far, the rules and guidelines haven’t completely been laid out with respect to using a credit card through UPI. So as of yet, it isn’t clear whether MDR will be applicable or not.

• The adoption of UPI has been rapid even in Tier 2 and Tier 3 cities with almost 50% of transactions being online in these areas.

• Sectors such as EdTech, E-commerce, gaming, and healthcare have shown the highest adoption rate for the volume of online transactions using UPI.

• One thing that is very clear is that there are definitely more UPI users in India than credit card users. But at the same time, the average payment volume on credit cards is much higher than the average payment volume of a UPI user. 

• Depending on how the rules of linking credit card to UPI pans out, India could either see massive adoption of credit cards or its decline within the country.

Related read - RBI's new guidelines on data protection and card transactions

If all types of credit cards soon become eligible to be linked and used with UPI platforms, then merchants will no longer have to have a POS machine where a credit card needs to be inserted or swiped to make a payment.



Consumers being able to link credit card to UPI platform will make it convenient for them to utilize their credit card more easily in places they couldn’t before. They will also not have to carry around their physical credit card with them all the time and risk losing it.



Ever since the boom of cheap internet and smartphones in India, the payment landscape through digital methods like UPI and digital wallets has also increased significantly.

Instead of carrying a hefty wallet with cash or cards that need to be kept safe, it is much easier for consumers to just use their phones and transfer money through UPI.

By linking credit card to UPI, the process will become even more convenient.



The more payment tools that can be integrated with UPI the better it is for merchants.

They get the benefit of a customer using it and receiving payments they otherwise might not have received from a credit card holder due to the absence of a POS machine.



When using a physical credit card, there is always the chance of it being stolen and used for online transactions.

Then you have to go through the hassle of calling the card issuer’s customer support, deactivating the card, and sorting things out. 

On the other hand, using a digital mode like UPI is much safer thanks to robust IT security that is set in place to avoid fraudulent activity.

The fact that a person has to unlock your phone and then also bypass all security measures to make a payment makes it much safer than using a physical credit card.



The average transaction value of payments made using a credit card is generally much higher than that of a UPI transaction or one made through a debit card.

So using credit cards through UPI will directly increase the payment volume of transactions taking place through it. 



There is massive scope for growth for merchants to receive payments from people who might have avoided purchasing from them if they did not accept credit cards.

Now that you will be able to use RuPay cards to link credit card with UPI, it’ll be easier for people to make payments of higher value without having to transfer directly from their bank account.