RuPay credit cards are experiencing significant growth after being linked with UPI, with issuance rates jumping to 30% from a mere 5% in 2022-23. This shift towards UPI-based credit cards on third-party apps like Google Pay and PhonePe is creating challenges for banks, raising concerns about customer retention and cross-selling opportunities. Fintech startup Fibe, led by Ashish Goyal, anticipates a potential struggle for market share among top UPI apps.
The integration of Unified Payments Interface with RuPay credit cards has given a substantial boost to these domestic cards. Currently, around 30% of new credit cards issued in India are on the RuPay network, according to two informed sources.
This is a significant increase from the 2022-23 period when RuPay cards accounted for only about 5% of new credit card issuance, before the Reserve Bank of India permitted linking UPI with these cards.
While American card payment giants Visa and Mastercard still dominate the domestic credit card market, RuPay is gaining ground.
A senior banker, speaking anonymously, told ET, “Large banks are issuing RuPay credit cards more proactively, given there is customer demand… Even co-branded cards are now running on RuPay platform which is helping fresh issuance to go up.”
Despite the rise in card issuance, transaction growth hasn’t kept pace, according to industry insiders. Banks are concerned about potentially losing valuable credit card customers to payment applications that dominate UPI.
A senior payment industry insider, speaking on condition of anonymity, explained, the credit card on UPI ecosystem come on third-party apps like Google Pay and PhonePe. If customers attach their credit cards to these TPAPs, these apps may start cross-selling insurance or cash loans to these customers, leading banks to fear losing visibility of their customers.
This challenge extends beyond credit cards on UPI, as banks are already grappling with customers using their bank accounts for payments but transacting on third-party apps, resulting in reduced customer visibility for banks.
Ashish Goyal, cofounder of fintech startup Fibe, which issues co-branded RuPay credit cards with Axis Bank, commented, “This is a larger challenge (for banks) and not just only because of UPI on credit.” I believe this is a challenge they’re addressing for UPI itself. With the top three apps controlling the majority of UPI traffic, banks naturally want to secure their share.
Goyal predicts that these cards will eventually gain traction, similar to the initial slow adoption of UPI itself.
Another issue is consumer habit regarding UPI usage. NPCI data shows that the average ticket size of merchant transactions on UPI is between Rs 1,400 to Rs 1,500. Typically, customers use their savings accounts for such small-value transactions.
Ramakrishnan Ramamurthy, executive vice president of French payments company Worldline India, noted, “For small value payments, people by default are accustomed to using their UPI handle through their bank account, and a credit card doesn’t necessarily come on top of the mind for smaller transactions. From that perspective, it is not a right fit in the current scheme of things.”
RuPay credit cards received a significant boost in June 2022 when the RBI allowed linking of RuPay credit cards with UPI, making it the only UPI-linked card network. In October 2023, NPCI announced that interchange fees would apply to credit card transactions on UPI, with exemptions for small merchants.
In March 2024, the RBI directed card issuers to offer customers multiple network options at the time of issue and prohibited exclusive arrangements that prevent customers from using other card networks. This move has potentially benefited the homegrown RuPay card network.
While these developments have created a foundation for ecosystem expansion, the issue of charges on credit card-based UPI transactions has caused confusion in a market accustomed to free UPI transactions.
Currently, MDR is levied on UPI-linked RuPay credit card transactions above Rs 2,000, with no charges for transactions below this amount. MDR is a fee charged by banks for processing transactions and is often market-determined.
Mohit Bedi, cofounder of credit on UPI startup Kiwi, observed, “Most banks are still testing how the RuPay credit card on UPI will pan out.” Apart from a couple of banks like Bank of Baroda or HDFC Bank, not many have started issuing cards widely. Mostly, banks are offering it to their existing customers.”
Bedi added that the number of merchants that can potentially be integrated into the credit card on UPI ecosystem is over 30 times more than those with point-of-sale terminals. This could offset the lower interchange fee from RuPay card transactions compared to Visa and Mastercard. As the ecosystem evolves, it’s possible that some financial institutions might even consider offering quick cash loan app services integrated with these credit cards to provide additional value to customers.
