NPCI could announce an interchange of 1.2 % for credit line on UPI transaction. Several sources discussing the matter report that the National Payments Corporation of India is likely to issue a circular for the same by next week.
Interchange refers to the commission paid by the merchants to the credit issuer on transactions, which makes up 90% of the merchant discount rate that the merchants pay the banks to facilitate the transaction. The amount paid as interchange is for the risk and interest for the capital that the credit issuer deploys, and the consumer does not pay any charge in this transaction. While the credit-issuer receives 100% of the interchange, NPCI, card networks, customer bank account, and merchant bank get 5-15 basis points.
NPCI, banks and third-party apps have been negotiating the terms of each partner’s share in the revenue. Though the decisions have not been finalized yet, the third-party UPI apps will most probably receive 8 basis points (0.08%) commission on each transaction. The payment service provider (PSP) banks that offer the UPI service for TPAPs could also get the same commission.
A credit line on UPI means a pre-sanctioned loan for the customer’s UPI-linked account. Credit line on UPI could see multiple products from the banks involved, such as, an interest-free period for the credit availed by the customer- much like credit cards, and another where the interest will be paid from day one- similar to overdraft loans. The interchange will be the same for the two, as per the observations of a prominent banker. The product is issuer-led because credit brings along risk.
The credit line will not be available for person-to-person or peer-to-peer, and money transfers in the absence of interchange. So, the transactions made on personal savings accounts will be declined.
It has been nine months since the credit line on UPI was announced but the plan has seen no progress in the lack of a strong case for the product. Banks have been reluctant because their card business has been profitable with an MDR of 2%, and fear that credit line on UPI will threaten their card business. Nevertheless, NPCI circulars on UPI should make the participation mandatory to promote mass adoption from customers as seen in the past.
Rupay founder spoke that UPI apps could be the determinant of success as they could potentially prompt the customers to try a new credit product.
