The pervasive availability of its acceptance infrastructure, both offline and online, and its simplicity of use, both for the sender and receiver of money, may explain the rise in quantity and value of Unified Payments Interface (UPI) transactions.
Customers end up using UPI because of its omnipresence and convenience of use, even if they have a credit card, resulting in its phenomenal expansion to compete with credit card spending. Because of the decreased cost and simplicity of transactions, merchants promote the use of UPI as well.
The RBI approved the linking of RuPay credit cards with UPI in June 2022, much to the delight of the Indian credit card sector. As of December 2022, RuPay had 25.6 crore transactions worth Rs 1.27 lakh crore, making this move a game changer for the sector. These statistics represent just 3% and 10% of UPI transactions and value in December 2022, respectively.
Since last June, credit card issuers have been hard at work to provide RuPay credit cards to the 260 million (and increasing) UPI customers as a new source of cash for their transactions. They want to wean existing users away from using their bank accounts for such transactions, therefore boosting credit card usage, particularly because small retailers that do not already accept such payments would do so once cards are connected with UPI.
Let us quickly look at the pros and cons of linking credit cards with UPI:
Pros: credit cards may now be used at any business supporting UPI payments, such as a vegetable vendor, milkman, or newspaper vendor, without emptying one’s bank account.
Therefore, there is no need to carry the card, lowering the risk of fraud and loss.
Cons: Since all purchases may now be charged to the card, there is a danger of overspending because there is no need to worry about having money in the bank.
For card issuers
Advantages: additional spending, particularly for smaller shops without the ability to process card payments. This will also assist with activation and engagement since consumers of all demographics will discover new ways to utilise their cards.
Cons: If you spend money at smaller stores, you might not get any interchange money, and you might also lose interchange money from bigger stores if the categories are wrong or the interchange rates aren’t linked correctly.Once cards are integrated with UPI, a whole new set of use cases will emerge, necessitating improved fraud risk management.
As you can see, the pros are more important than the cons, and the decision to link credit cards to UPI will be a game changer for the Indian card industry.Issuers have begun to roll out this feature, while other card networks are waiting for the RBI’s approval to connect their cards with UPI.
One sign of the blurring of the digital divide is the widespread acceptance of digital payments.
There are various causes for the country’s quick development and acceptance of digital payments, including government programmes such as financial inclusion, no-frills accounts, direct benefit transfers, and demonetisation. The pandemic was another unexpected factor, with customers preferring no- or low-touch payments.
The QR code, which is now seen in nearly every store, is a representation of the digital transformation brought forth by the UPI platform.
Since its inception in April 2016, UPI has grown significantly. According to the NPCI website, in July 2016, roughly 90,000 transactions (across 21 member banks) for Rs 38 lakhs grew to a whopping 7.8 billion transactions (across 382 member banks) for Rs 12.8 lakh crore in December 2022.