LINKING OF CREDIT CARDS WITH THE UNIFIED PAYMENTS INTERFACE PLATFORM

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Context

The Reserve Bank of India has proposed to allow linking of credit cards with the Unified Payments Interface platform.

About

The UPI has, become a popular mode of payment in India with more than 26 crore unique users and five crore merchants on the platform.
At present, the UPI facilitates transactions by linking savings/current accounts through users’ debit cards. It is now proposed to allow linking of credit cards on the UPI platform. This is intended to provide additional convenience to users and enhance the scope of digital payments.

What is the benefit of this provision?

Currently, many merchants do not have credit card point-of-sale (PoS) terminals especially in semi-urban and rural areas but a significant number do have the QR code-based UPI acceptance facility. Now, they too will be able to accept credit payments via UPI without needing a PoS device.
Linking of credit cards with UPI is likely to increase the use of such cards in small-ticket-size payments, as it would provide users with more options to pay from. The move will provide a significant boost to overall spending via credit cards — currently, spending through the use of credit cards is more than double the average spend via debit cards. More spending is generally a force multiplier for the economy.
The arrangement is expected to provide an additional avenue for payment to customers and hence enhance convenience. The linking of credit cards to UPI has been proposed to further deepen the reach and usage of credit cards.

Will a merchant discount rate be applicable for these payments?

There is no word yet on the merchant discount rate (MDR) applicable on transactions using credit card numbers via UPI, other than for RuPay, which attracts no such charge.
Today, since foreign card issuers such as Visa and MasterCard have a lion's share of the credit card network business, part of the fees goes to them. However, the Indian government has shown its intent to promote the indigenous RuPay card system.
It remains to be seen if it indeed does turn out more economical for merchants to accept payments from users with credit cards from foreign issuers.

MDR (Merchant Discount Rate)

Merchant Discount Rate (alternatively referred to as the Transaction Discount Rate or TDR) is the sum total of all the charges and taxes that a digital payment entails. For instance, the MDR includes bank charges, which a bank charges customers and merchants for allowing payments to be made digitally. Similarly, MDR also includes the processing charges that a payments aggregator has to pay to online or mobile wallets or indeed to banks for their service.

MDR (Merchant Discount Rate) is basically a fee that a merchant is charged by their issuing bank for accepting payments from their customers via credit and debit cards. MDR is a charge paid by merchants to banks, card networks, point-of-sale providers for offline transactions, and payment gateways for online purchase.

Currently, UPI payments do not attract merchant discount rates (MDRs), while for debit cards, MDR is capped at 0.9 per cent for transactions, except for RuPay debit card, which attracts zero MDR. In the case of credit cards, there is no cap on MDR.

On credit cards, MDR ranges 2-3% of the transaction value.

The MDR rates are dependent on the level of business transactions being processed, the types of cards (debit or credit) used by customers, and the value of the average transaction (also known as average tickets or average sales). Typically, the key component of the discount rate is the interchange fees.

Example:

If a customer pays Rs. 10,000 via a credit card to a merchant while the MDR is 2%, then the merchant will be charged Rs. 200 to accept this payment.

MUST READ:

UPI: https://www.iasgyan.in/daily-current-affairs/upi

RuPay: https://www.iasgyan.in/daily-current-affairs/msme-rupay-credit-card

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