Unified Payments Interface (UPI) transactions made using RuPay credit cards face significant challenges. Introduced in September last year, the government’s initiative was aimed at strengthening acceptance infrastructure but faced hurdles related to the inability to distinguish between card-on-UPI and regular UPI transactions.
One pressing issue revolves around the lack of prior classification, leading to confusion among merchants who inadvertently accept UPI payments without understanding the additional charges involved. This problem is particularly acute for small merchants accustomed to zero Merchant Discount Rate (MDR) when dealing with regular UPI transactions.
The challenges
Although UPI transactions remain free, transactions made through linked credit cards attract the same exchange rate and MDR as traditional credit card transactions. This has raised concerns from both merchants and banks who question the increased costs associated with RuPay and UPI transactions.
To address this challenge, the National Payments Corporation of India (NPCI) implemented a mechanism allowing merchants and banks to distinguish between the two transaction types, enabling them to assess charges accordingly. Despite this corrective measure, some industry insiders express reservations, suggesting that a more thorough testing process before the launch of the feature could mitigate financial losses.
What NCPI aims to do
In response to potential problems such as lower adoption rates and merchant discrimination, NPCI is actively exploring a fee-revenue-based incentive model. This model aims to compensate merchants for the increased charges on RuPay UPI transactions compared to regular UPI transactions. The move is in line with NPCI’s broader strategy to encourage the issuance and adoption of cards on the RuPay network, aiming to reduce reliance on foreign players such as Visa and Mastercard and facilitate seamless connections with other products in the NPCI suite, including from UPI.