The Reserve Bank of India is now allowing linking of RuPay credit cards to the UPI (Unified Payments Interface) network, a move with a potential to expand the credit market by nearly five times.

For starters, the regulator has approved the use of RuPay credit cards for this service.

While the number of people who get fast loans is estimated to be approximately 50 million, permitting credit card transactions through the UPI interface is expected to give credit to nearly all of UPI's 250 million users.

With over 260 million unique users and 50 million merchants onboarded, UPI is the most inclusive way of payment in the country. The platform handled about 5.95 billion transactions worth Rs 10.40 lakh crore in May.

“Currently, UPI is linked through debit cards and bank accounts. Now, you can link your credit cards, too, which improves the journey. How the pricing will work out, that we will have to see as we go forward”, states T Rabi Sankar, deputy governor, RBI.

“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”, expresses Aashay Choksey, assistant vice president, financial sector ratings, ICRA.

Choksey further went on to say, “However, as RuPay issued credit cards are still gaining market share, this is unlikely to grow materially in the near term unless the enhancement in UPI linking is extended to other card platform operators as well”.

From Rs.41.04 lakh crore in FY21 to Rs.84.16 lakh crore in FY21, UPI-based payment throughput more than doubled to Rs.84.16 lakh crore in FY21. As of April 22, 2022, the total credit outstanding on credit cards was over Rs.1.5 lakh crore.

“With the added layer of a credit card linked to UPI, we believe that customers who didn't have access to a credit card previously but want the experience of a 30-day interest-free credit will now get to do it, thereby broadening the scope of digital payments”, says Anuj Kacker, cofounder, Freo.

“Credit cards serve two primary purposes: convenient payments and short-term liquidity, hence this is a logical step,” says Gaurav Chopra, CEO of IndiaLends, an online marketplace for credit products. “UPI has already proven its utility by its widespread adoption and bringing the same convenience to access credit can be a watershed moment for credit penetration in India”.

“The basic objective of linking credit cards to UPI is to provide customers a wider choice of payments”, adds Sankar.