Our previous post discussed what card networks are and how they work. Check it out to understand the basics of card network.
Now that we understand what card networks are, we can focus more on RuPay and analyse why the Indian Government is pushing for RuPay over Visa and Mastercard.
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Buckle up. Here we go!
What is RuPay?
As you might know, RuPay is a card network like Visa and Mastercard.
RuPay is an indigenous payment system that aims to provide affordable and accessible payment solutions to the masses in India. RuPay competes with global giants like VISA and Mastercard as it was introduced to reduce the monopoly of these international card networks.
The National Payments Corporation of India (NPCI) launched RuPay in 2012.
NPCI is an umbrella organisation for operating retail payments and settlement systems in India. It is an initiative of the Reserve Bank of India (RBI) and the Indian Banks’ Association (IBA) for building a robust payment and settlement infrastructure in India.
Currently, 56 banks are shareholders of NPCI, and NPCI is the entity behind UPI, AEPS, FasTag, NACH, IMPS, etc.
Why is the Indian Government promoting RuPay?
The reason is rather simple.
The Indian government’s emphasis on RuPay is rooted in promoting homegrown innovation. By nurturing and supporting a domestic payment network like RuPay, India aims to build a self-reliant ecosystem that aligns with its “Make in India” initiative.
And in a nation as diverse as India, financial inclusion is crucial. RuPay’s focus on catering to a wider range of income groups and geographical regions aligns with the government’s vision of bringing banking and financial services to underserved communities.
RuPay’s integration with government welfare programs, such as PMJDY (Pradhan Mantri Jan-Dhan Yojana) and MUDRA, streamlines the distribution of funds to beneficiaries. This not only reduces leakages but also enhances transparency and efficiency.
Also, RuPay offers a competitive advantage in terms of lower transaction fees compared to global giants like VISA and Mastercard. This reduction in fees benefits both consumers and businesses, making transactions more affordable and contributing to economic growth.
How is the Indian Government promoting RuPay?
Along with RBI, the government has mandated the use of RuPay cards for various transactions, such as government employee salary disbursements, direct benefits distribution, etc.
Additionally, it has mandated all Public Sector Banks (PSU) to promote RuPay cards over other cards to their customers. Because of this, the market share of RuPay in the debit card segment rose to 60% in 2021 from just 15% in 2017.
Further, initially, the RuPay cards came under zero MDR norms.
MDR or merchant discount rate is a fee charged by banks to merchants for processing payments. They usually split this fee between the acquiring bank (the bank whose card machine a merchant uses), the card network (such as RuPay, Visa or Mastercard), and the issuing bank (who issued the customer or payer’s card).
The government offers incentives to banks for the foregone MDR revenue to further encourage their adoption.
But we did not see the same growth in the credit card segment. Why?
RuPay only has around 20% share of India’s credit card market, which is led by Visa, followed by MasterCard.
This is because banks were promoting Visa and Mastercard credit cards over RuPay. Basically, banks earn more money from Visa and Mastercard credit cards because they share a good commission from the high MDR they charge.
To tackle this situation, the RBI and NPCI have announced that you can add your RuPay credit cards to UPI. This will increase the demand for RuPay credit cards.
Also, there is a discussion going around to allow customers to switch between card networks. If all goes well, from Oct 1st, 2023, you will be able to change your credit card’s network from Visa or Mastercard to RuPay.
This may lead to an increase in RuPay credit cards in the Indian credit card segment.
But what are the benefits and disadvantages of using the RuPay card network for you?
Advantages of RuPay
1. Made in India
RuPay is a proud product of India. By using RuPay, you’re supporting domestic innovation and contributing to the growth of the Indian economy.
2. Lower transaction costs
RuPay transactions often come with lower processing fees compared to international counterparts like VISA and Mastercard. This is especially helpful for small businesses and merchants, as it reduces their operational expenses. More merchants will accept RuPay card payments.
3. Financial inclusion
To receive a Visa, Mastercard, American Express or Diners Club card, you have to meet some eligibility criteria. But one of RuPay’s primary objectives is to promote financial inclusion. It targets areas where banking services are scarce, offering a means for individuals to access banking and payment services easily.
4. Customised for Indians
RuPay is tailored to cater to the specific needs of Indians. It understands the unique spending patterns, cultural preferences, and financial habits of the Indian populace and offers rewards similarly. At least, this is what NPCI has promised to do so. You can check out rewards offered by different RuPay cards here.
5. Government support
The Indian government has been actively promoting the adoption of RuPay through various initiatives, including linking it with welfare programs like RuPay PMJDY (Pradhan Mantri Jan-Dhan Yojana) card, RuPay MUDRA, etc making it a convenient tool for social schemes.
6. Latest technology
All the latest tech developed by NPCI will be first implemented on RuPay cards, like credit cards on UPI, RuPay on the GO, etc.
Drawbacks of RuPay
1. Limited international acceptance
While RuPay has made significant strides, it still lacks the widespread international acceptance that VISA and Mastercard enjoy. This could be a drawback for frequent travellers.
2. Technological advancements
VISA and Mastercard often lead the way in adopting cutting-edge payment technologies. While RuPay has been catching up to them quickly. But international exposure gives them an extra edge in this aspect.
3. Perceived prestige
In some circles, using a global payment system like VISA, Mastercard, American Express and Diners Club is associated with prestige and status. RuPay, as a newcomer, might not offer the same cachet.
Remember, the financial landscape is constantly evolving, and the best choice for a card network today might not be the best choice tomorrow. Stay informed, stay adaptable, and continue making financial decisions that empower your journey toward a prosperous future.
We hope this newsletter has shed light on the significance of RuPay and its role in simplifying transactions for Indians. If you have any further questions or topics, you’d like us to explore, feel free to reach out.
That’s it for today, buddies. Stay tuned for more insightful newsletters on personal finance topics that matter to you.
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Still Curious?
If you are like me, who likes to analyse a little more or check out content in different formats, well you are in luck. Below you can find some suitable content we found.
Moneycontrol – Why has RuPay rattled Visa and MasterCard?
Fortune India – RuPay’s Rise Heats Up Payments
Note: We don’t have any affiliation with them. We are sharing links only for educational purposes. The opinions expressed by them belong solely to them and do not reflect the views of Vrid.