NPCI Promotes the Use of RuPay Credit Cards
The National Payments Corporation of India (NPCI) has begun providing financial rewards to banks to promote the use of RuPay credit cards among their customers, aiming to encourage domestic payment options.
The funding for these incentives comes from the fees RuPay charges banks for credit card transactions. While global card networks such as Visa and Mastercard have long offered similar incentives, NPCI's new strategy represents a notable departure from its previous focus on attractive settlement rates for banks.
NPCI is becoming increasingly competitive and is vigorously advocating for domestic payment solutions. Although RuPay credit cards have existed for several years, their uptake surged after the Reserve Bank of India authorized linking them with the Unified Payments Interface (UPI) in 2022.
This development enables consumers to utilize UPI payments with their RuPay credit cards, a capability not yet available for Visa and Mastercard credit cards.
“International card networks have traditionally provided banks with business-related incentives, such as cashbacks based on the volume of cards issued and transaction frequency. NPCI is now implementing a similar approach,” noted the founder of a credit card startup.
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Every time a credit card is used, the issuing bank collects an interchange fee. From this fee, card networks like Visa and RuPay take 25-40 basis points as their charge. To manage costs, banks often seek discounts on these fees or incentives to keep their net expenses between 10-15 basis points.
RuPay has recently started to return a portion of the fees to the banks as incentives. Additionally, banks favor incentives over discounts since the earnings can be reported as non-interest fee income.
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The conditions for incentive payments can differ, but major private sector banks generally receive favorable rates from NPCI, according to another executive. Using rough estimates, NPCI might provide around 10-12 basis points of the transaction amount as incentives.