Partner With Us NRI

Credit Cards on UPI: Everything you need to Know

ICICIdirect 8 Mins 29 May 2023

In recent years, as Indians, we have all been proud that a platform like UPI originated in our country. You may have read about how Facebook, Instagram, and ChatGPT gained popularity in no time. UPI will be somewhere at the top if we factor in the total addressable market and penetration. 

To give you some numbers (from the NPCI website), in July 2016, only 90,000 transactions happened via UPI - the numbers were close to 7.8 billion in December 2022 - Amazing growth!!

Until recently, UPI payments could only be linked with your debit cards (bank accounts) - but that is changing now. Let us look at what is changing and how it impacts you as a consumer.

The Change

One of the reasons why UPI has been so successful in India is because of the ease of use and security it brings to cashless transactions. When you make a UPI payment, the money gets deducted from the bank account linked to your UPI ID. And for UPI payments, only debit cards were allowed.

Many people in India want to use their credit cards to have liquidity throughout the month. Also, UPI payments were affecting the business of credit card companies in some ways. Therefore, to make UPI more useful for consumers and give a breather to credit card issuers, the Reserve Bank of India (RBI) allowed linking credit cards to make UPI payments (June 2022). 

Presently, the facility is only available for RuPay credit card users. So if you have a Visa or MasterCard credit card, you won't be able to use it for UPI payments. Also, only five banks have gone live with the facility - Union Bank of India, Indian Bank, Punjab National Bank, HDFC Bank, and Canara Bank.

We would like to highlight that credit on UPI is not an entirely new concept. We already have companies that allow users to use credit for UPI payments - however, it is not via credit card. Credit cards come with attractive discounts and offers. Hence, you may prefer to use credit cards for transactions. Linking credit cards to UPI is expected to be a game changer in India - both for consumers and credit card companies. Let us explore more.

Top 6 reasons to link your credit cards to UPI apps

Now that you understand what is changing related to your UPI payments, let us help you decide whether to use or avoid it. Below are six reasons you can consider linking credit cards to UPI apps:

  • You can scan the merchant QR code and make the payment from your credit card through your preferred UPI app.
  • Post linking, you can make mobile recharges, initiate telephone bill payments, or pay your electricity bills with utmost security from UPI apps. 
  • Making such payments from a credit card (via UPI) gives you liquidity, and you also earn reward points from your credit card company.
  • To use your credit card, you don't have to carry it everywhere.
  • You don't always have to use your credit cards for UPI - if you have exhausted your credit card limit - you can choose debit cards for making payments on the same UPI app.
  • The RuPay credit card will not take any charges on UPI transactions up to Rs 2,000. 

Why are credit card issuers happy with the move?

For small to medium-sized transactions, individuals mostly preferred the UPI apps for payments since small merchants don't have the setup to accept credit cards. With this change, card issuers can now tap into payments made to small businesses, which can bring in good volume for them every month.

Restriction on using credit cards for UPI payments

When it comes to credits and credit cards, people start looking for loopholes in the system. Are you thinking something like this - you will transfer X amount to your friend's account via credit card using UPI, take the money from him, and use the cash for different purposes? Well, that is not going to happen. RBI has ensured that the facility is not misused, and hence there are restrictions on usage.

  • You are not allowed to transfer money from your credit card (RuPay) to your individual UPI ID.
  • You cannot make payments to any other credit card, that has UPI integration. In other words, you can't pay into someone else's credit card via UPI using your credit card.
  • The facility does not permit money transfers to small merchants who have inward UPI remittances less than or equal to Rs 50,000 per month. Only Payment to Merchants will be allowed from the UPI-linked RuPay credit card.

Things to understand before linking your credit card for UPI payments

If you are a new credit card user, you need to be careful that you are not exhausting your credit limit. Since you don't need the money in your bank with this facility, there could be a tendency to overspend. 

If you fail to make the payments on time, you must know that the interest charged by these credit card companies is very high. You may fall into a debt trap if you don't manage your usage well.

Will this be a game-changer?

In the digital payments space, linking credit cards with UPI payments is a game changer, at least in theory, with many advantages for both consumers and companies. However, when the volume increases, how the whole system shapes up would be something to look at and monitor. For now, it is a good move for everyone. 

Enjoy the new Native experience

ICICIdirect APP - All in 1

Download our App and get started with your investment and trading journey with features such as Basket Orders, Stock SIP, Research Recommendations and much more at one place.