In the past few years, there has been tremendous growth in credit card adoption, and experts say UPI has outstripped every other mode of payment.
Gaurav Chopra, Founder and CEO, IndiaLends says, “Bringing the two together is a boon for existing and underserved customers in India. UPI’s deep penetration and ease of adoption enable users across the spectrum to maximise the core benefit of a credit card, i.e. short-term interest-free liquidity.”
He further adds, “We can expect some customers to substitute Debit UPI with Credit UPI for petty expenses as well, to make the most of their credit cards’ interest-free period. A simple conversation with your roadside pan kiosk or Dhaba can help you see how UPI dominates payments, even for small amounts, mainly due to zero MDR, but we can’t discount the change in user behaviour driving this adoption just as much. The debate around zero MDR on UPI will continue for some time.”
Having said that, when it comes to driving other rewards and benefits for which credit cards are famous for, Chopra explains, “we will need to see if issuers pull back on rewards and benefits or incentivise users to choose their credit cards for payments.”
Experts say user behaviour and business sustainability will eventually define which way rewards and benefits go.
How can UPI on credit cards help the user improve their credit score?
An individual’s credit score is an essential part of their credit profile. Monitoring and maintaining a good credit score is imperative for anybody seeking any credit. A good score provides the borrower peace of mind with preapproved offers and results in tangible savings through lower interest rates.
“A credit card can be an excellent product for those looking to build or repair credit, besides providing short-term interest-free liquidity,” points out Chopra. Credit cards allow borrowers to start small and demonstrate responsible behaviour, eventually improving their credit score and eligibility for higher limits or other types of loans.
Credit cards have also had a reputation for being a product for the elite, with apprehensions around merchant acceptance. Chopra further adds, “UPI has changed this paradigm, enabling customers to make payments using their credit cards and allowing more opportunities for those looking to build or repair credit.”
However, note that having UPI-enabled credit cards does not change the basic process for improving your credit score. Credit scores improve as long as you utilise your credit mindfully and pay it back on time. “UPI enhances the opportunities for customers to use credit and demonstrate responsible borrower behaviour that would eventually result in an improved score,” concludes Chopra.