Impact of credit card usage via UPI on small businesses

Credit cards on UPI may up costs for small business

Earlier this year, RBI announced that credit cards can now be linked to UPI (Unified Payments Interface). While this provides a lot of opportunity for buyers, what will be the impact on sellers, especially small businesses? Let us first understand what these terms mean, and what the opportunity and cost associated with them.

What is UPI (Unified Payments Interface)?

UPI is one of the most preferred payment systems in India where customers can link their savings and current account with debit cards to make real-time transfers. The major advantage of UPI is its acceptability across India including small businesses and shops. The payment is made via the UPI-enabled mobile app.

 You can simply make the payment by scanning a QR code, choosing your bank account, and entering a unique PIN each time to approve the transaction and it’s done. It eliminates the need to carry your debit card or cash and hence only using a mobile phone you can pay for transactions across the country. 

UPI eliminates the need for the merchant to have a POS machine which comes at a cost. The machine also sometimes works and sometimes doesn’t. It also doesn’t accept all kinds of credit cards. Linking your credit card with UPI enables faster and easy cashless payments.

What impact does payment via credit cards on UPI have on small businesses?

The decision to link credit cards to UPI has been a happy one for consumers as they get another option to pay on credit. It even enables small merchants and street vendors to accept cashless money and hence increase revenues eventually.

 While the cardholders are happy, it passes on the cost of providing free credit for 45 days to the small business. 

According to a report, retailers accepting payments via credit cards pay around Rs. 13,000 crores to banks to meet the “free credit” cost. Normally speaking, the cost of accepting payments via credit cards is double that of debit cards to the merchant.

The decision is likely to attract a Merchant discount rate (MDR) and smaller traders might get a subsidy for this. Merchant discount rate is a fee charged by the bank to the merchant for using a credit card at the point of sale. 

While till now, payments accepted via UPI were free of cost since they were only linked to debit cards and savings accounts, linking them with credit cards will come at a cost since using a credit card will almost become like lending credit. Using credit cards via UPI will inevitably come with a charge for which a commercial model will be made. Only if the model is viable to merchants is when they will accept it as a mode of payment. While the working of the model and viability still isn’t very clear, it will take some time to see how it will work for the benefit of all.

Learn what the credit card usage via UPI means for small businesses. How will they be impacted and is it going to be beneficial for them in the long term. Read on to know more.

Some interesting facts about UPI – 

  • UPI enables real-time cashless money transfer via mobile phones at various big and small merchants 24 hours a day, 365 days a year.
  • It enables the use of your smartphone as a virtual debit card eliminating the need of carrying cash and cards.
  • You can access multiple bank accounts through a single application.
  • Payment is single-click via two-factor authentication.
  • Nearly 71% of the users prefer UPI apps such as Paytm, Google pay, PhonePe, etc. 
  • It allows sharing of bills with friends
  • It is a highly useful and functional alternative to using cash on delivery or having to go to the ATM for cash withdrawals.
  • UPI can be used to pay utility bills, and purchases, make online payments, and barcode payments.
  • The daily upper limit for UPI transactions is Rs. 2 lakhs. A person can make up to 20 UPI fund transfer transactions per day. This restriction excludes merchant transactions and bill payments.
  •  UPI transactions crossed Rs. 80 trillion in FY22. In March 2022, it processed 5.04 billion transactions, another milestone for UPI.


The introduction of credit card usage via UPI will definitely boost business for small and big businesses. However, it is too early to say what the impact will be. It will be interesting to see how the implementation of credit cards with UPI will take place and whether it will be beneficial in the long run for everyone.


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