As RuPay on UPI faces some roadblocks, NPCI explores corrective options

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The National Payments Corporation of India (NPCI) is exploring ways to encourage payments made via RuPay credit cards linked to UPI (Unified Payments Interface), a medium that has been facing some roadblocks due to slower-than-expected adoption.

The government introduced UPI payments via RuPay credit cards in September last year. While allowing the linkage of RuPay credit cards on UPI has increased the acceptance infrastructure for such cards multi-fold, the biggest drawback is the inability of merchants and banks to differentiate between card on UPI and regular UPI transactions being made via QR codes.

“It was launched in a hurry and it is still a problem because when you go to a small merchant and pay by credit card, they are used to zero MDR. But if a credit card is used they get less money,” a senior payments industry official told businessline.

“Even in the case of bigger merchants, banks have tie-ups for fixed retailer rates but these have gone up because of RuPay and UPI. While these merchants have higher margins, they are also now questioning banks,” they added.

Even as UPI transactions continue to be free, UPI transactions made via linked credit cards attract the same interchange and merchant discount rate (MDR) as any other credit card transaction.

Some sections of the industry also believe that the effective MDR on card UPI transactions is higher than card PoS (point-of-sale) transactions due to the additional layer of intermediaries such as PineLabs which absorb part of the cost for pure card transactions.

UPI vs card on UPI

The lack of prior classification between the transaction type has led several merchants, especially large offline merchants, to accept such UPI payments without realising the extra charge they attract. As a result, certain payment gateways and banks, at the behest of the merchants, stopped accepting payments via RuPay on UPI.

In response, the NPCI has now gone live with a mechanism, which once integrated by payment gateways and intermediaries, will allow merchants and banks to identify and classify the two types of transactions and accordingly assess the charge.

“NPCI has built the system, it is already live. It includes a return parameter, so if it is a credit card on UPI transaction, it alerts the system that it needs to be treated as a credit card transaction and not UPI,” a source said adding that the update is received both at the merchant and bank end.

NPCI introduced this on an ad hoc basis and the functionality has been live for the past month or so and should be adopted by most payment intermediaries over the next 15-20 days, sources said.

“It was done as an afterthought, so this has left a little sour note. We lost some money which we could have avoided if we had been able to inform the merchants in advance,” said the head of a payments platform that had to pay additional money to banks once credit card on UPI was introduced. He added that it would’ve been smoother if the NPCI had tested the ecosystem before introducing the feature rather than correcting it after launch.

However, fearing lower adoption of or merchant discrimination against RuPay UPI transactions, and to encourage increased adoption, the NPCI is also exploring a fee income-based incentive model where payment gateways may compensate merchants for the higher charges on such transactions compared with the zero charge on regular UPI transactions, a source said.

NPCI has been pushing the issuance and adoption of cards on the RuPay network to reduce the reliance on foreign players such as Visa and Mastercard, and for easy linkages with other products in NPCI’s suite including UPI.