UPI-Linked RuPay Credit Card: No MDR For Small Merchants For Up To INR 2K Transactions

The National Payments Corporation of India (NPCI) on Tuesday (October 4) said that no extra charges will be levied on small merchants for transactions of up to INR 2,000 processed via RuPay credit cards on the Unified Payments Interface (UPI).

In a circular, the NPCI said that the zero merchant discount rate (MDR) regime will continue to be applicable for the category, adding that the small merchants will also be exempted from interchange, app provider charges and other tariffs. 

MDR is charged to the merchants for accepting digital payments. While UPI payments are currently exempted from MDR, credit cards attract the highest MDR between 1%-2% of the total transaction amount.

“Acquirers shall categorise Small Offline Merchant as per the RBI circular dated December 6, 2017. Nil MDR (no interchange, PSP & app provider charges) shall apply for this category up to the transaction amount less than and equal to Rs 2,000,” the circular said.

The RBI defines small merchants as having an annual turnover of up to INR 20 Lakh. Similarly, an acquirer refers to the authority that accepts payments on behalf of the merchant through the payment processor as well as the credit network and maintains the merchant’s account. 

The circular charted out a framework for the initial phase of operationalisation of the RuPay credit cards on UPI. The move is essentially aimed at spurring  the penetration and usage of UPI-linked RuPay credit cards and to scale up the card acceptance infrastructure.

“RBI has approved linking of RuPay Credit Cards to UPI, which will provide a seamless, digitally enabled credit card lifecycle experience for the customers…Merchants will benefit from the increase in consumption by being part of the credit ecosystem with acceptance of credit cards using asset lite QR codes,” the NPCI said. 

In case of transactions above INR 2,000, existing interchange rates will be applicable on RuPay credit cards. Additionally, the acquirer will also have to reimburse eight basis points to the payment service and app provider each.

The NPCI also directed fintech players to promote usage of auto deduction for such cards, adding that there will be no requirement of additional factor authentication (AFA) for recurring credit card payments below INR 15,000.

Additionally, it outlined that only authorised credit card issuers will be permitted to operate such offerings under the extant regulatory guidelines. All payments will be authenticated via UPI PIN, as is the norm currently, and all credit card-related disputes will be resolved through Online Dispute Resolution (UDIR). 

The NPCI has also directed acquirers to ensure that cash withdrawal at merchants is not permitted. The circular also prohibits peer-to-peer (P2P) as well as card-to-card payments and has called on the apps and payment service providers (PSPs) to ensure safeguards to not process such transactions. 

Under the framework, acquirers have been told to ensure complete transparency and compliance with norms to maintain ‘hygiene’ of the merchant ecosystem. 

With the circular, the NPCI has also outlined the next phase of implementation which will allow users to avail value added services such as EMI conversion, limits management, spend, among others. 

Viability Vs MDR 

The operational framework comes weeks after RBI Governor Shaktikanta Das launched UPI-linked RuPay credit cards. Prior to that, only debit cards were allowed to be linked with UPI. 

In the recently unveiled Payments Vision 2025, the RBI had argued that the payments ecosystem was bearing the cost of facilitating payments, which was proving to be a deterrent to the growth of the space. 

Interestingly, when reports emerged that the union government was mulling introducing processing charges on UPI payments earlier this year, the move was widely criticised across the board. This prompted the government to issue a clarification saying that it was not the right time to make UPI transactions chargeable. 

Amidst all these, credit card transactions continue to see a major spurt. According to a Goldman Sachs report, credit card transaction volume in the country stood at $130 Bn in the financial year 2021-22 (FY22). The number is projected to grow to $285 Bn by the end of FY26, without counting the effect of UPI-linking on the market.