The Reserve Bank of India (RBI) has allowed linking of RuPay credit cards to the UPI network, setting in motion a massive expansion in the market for credit.

The central bank plans to extend this linkage to other credit cards as well, which will push credit-led consumption and increase the usage of Unified Payments Interface (UPI).

Currently, UPI allows transactions by linking users’ debit cards to their savings or current accounts.

"To start with, Rupay credit cards will be enabled with this facility. This arrangement is expected to provide more avenues and convenience to the customers in making payments through UPI platform. This facility would be available after the required system development is complete," RBI said.

Being much simpler for buyers to carry out transactions, UPI usage has grown exponentially. In May, almost 5.95 billion transactions worth Rs 10.40 lakh crore were processed through the UPI platform.

UPI has become the most inclusive mode of payment in India, with over 26 crore unique users and 5 crore merchants onboarded on the platform, RBI Governor Shaktikanta Das said.

The interoperability of prepaid payment instruments (PPIs) has also facilitated access of PPIs to the UPI payment system for undertaking transactions, Das added.

UPI-based payment throughput more than doubled to Rs 84.16 lakh crore in FY2022 from Rs 41.04 lakh crore in FY2021. By allowing linking of credit cards to the UPI network, credit penetration in India could explode.

“Permitting UPI-based payments to credit cards could lead to some of the upfront spending from savings/current accounts to shift to credit cards which in turn could drive higher card utilisation level and increase in spends per card for banks that operate a higher share of RuPay cards,” said Aashay Choksey, assistant vice president, financial sector ratings, at ICRA.

The new arrangement is expected to provide more avenues and convenience to the customers in making payments. “Traditional UPI apps were using the facility to pay the beneficiary directly from bank accounts. The addition of RuPay credit cards adds a credit line facility to UPI. Having a choice of payment, benefits both the merchant and the customer, as now the UPI payment can be done using a RuPay credit card without the merchant having a card-enabled POS terminal. The user needs to scan the QR code and can now choose RuPay credit card as the payment mode. While software changes will be required at the front end and back end, we are optimistic that this support will be available to the general public very soon,” said Worldline India CEO Ramesh Narasimhan.

The market will realise its full potential when other credit card providers like Visa and Mastercard are allowed to link to the UPI network. “As RuPay issued credit cards are still gaining market share, the overall credit outstanding against credit cards which stood at ~Rs.1.5 lakh crore as on April 22,2022 is unlikely to grow materially in the near term unless the enhancement in UPI linking is extended to other card platform operators as well,” said Choksey.