Get rewarded for UPI payments with virtual Rupay credit cards

“If a customer has a credit card on networks such as MasterCard or Visa and wants a Rupay equivalent to make UPI payments, they can ask the bank for a virtual card,” said Frederick Dsouza, business head-credit card, Kotak Mahindra Bank.

Most banks are offering virtual only card option now. It is a separate card and its credit limit is within the overall limit assigned to the primary card that the customer has. “Customers who show interest specifically in UPI transactions see value in these virtual cards as they don’t want to swipe them at points of sale (POS) machines,” said Dsouza.

How you benefit

The biggest pull of the UPI payment method is convenience, which is now available to credit card users as well. “In tier II and below cities, not every small merchant has a POS (point of sale) machine, whereas even a roadside snacks stall now has a UPI QR code. All such small payments that a credit card holder had to earlier compulsorily make from their bank savings account can now be directed to credit cards,” said Kashif Ansari, assistant professor of finance at O.P. Jindal University.

Even for online shopping where credit cards are accepted, transacting with UPI is more convenient as one doesn’t have to enter card details or OTPs (one-time passwords) for every transaction.

Like all other credit card payments, you get an interest-free repayment window of up to 45 days and earn rewards on each spend, if available on the card.

Sumanta Mandal, founder, TechnoFino, said UPI transactions are generally very small, so credit card users will use it more for convenience and not so much for rewards. That said, there is scope for rewards via cashback on such small spends.

For instance, Tata Neu Infinity HDFC credit card currently offers an attractive reward rate of 1.5% on almost all spends, barring rent, EMI payments, wallet loads, fuel, government categories, such as tax payment or NPS, and insurance. Getting a Rupay variant of this card can earn you ₹1.5 on every ₹100 spent on all small daily payments, such as groceries, commute fare, vegetable vendor, utilities, etc. While each UPI payment might be a paltry ₹50-100, these spends add up over the month (see graphic). A maximum of 500 Neu coins or ₹500 can be earned as cashback in a month on UPI spends. At the base reward rate of 1.5%, this means you can earn rewards on spends of up to ₹33,500. To be fair, utilities and groceries for most people don’t usually exceed this amount every month.

“Neu coins can be used to recharge your phone and at most Tata outlets, like Bigbasket, 1mg, etc.,” said Ansari.

All other Rupay credit cards earn rewards on regular essentials spends, but the reward rate is highest with Tata Neu Infinity HDFC credit card. Some cards don’t pay rewards on utilities or groceries, so check the exempted categories on your credit card as these UPI spends won’t earn you rewards. For cards that exempt utilities, a workaround is that you can buy Amazon vouchers with the credit card and use it to pay utilities on Amazon Pay.

Limitations

Only customer-to-merchant UPI payments are allowed through credit cards. This is done to ensure that people don’t revolve credit by transferring money to bank accounts of friends and relatives. “Any payment being made to a UPI ID or QR code that belongs to an individual and not a merchant will not show credit card as a payment option,” said Mandal. So, for instance, if an auto driver offers his personal and not business UPI QR code for payment, then you can’t pay for your ride using a credit card.

Even though UPI payments through credit cards have fared well since its launch, some big merchants have stopped accepting payments through this option. That includes IRCTC and Mother Dairy, said Mandal. This is because payments through credit cards carry Merchant Discount Rate, or MDR, cost—a fee that a business has to pay to a bank or card company that processes its card or digital transactions. In regular UPI payments, merchants don’t have to pay MDR. “Businesses have to pay 1.7-2% in MDR, which is higher than what is charged on POS credit card transactions,” said Mandal.

Does this deter higher acceptance of credit card-linked UPI payments by merchants, Dsouza said it is not a big concern as daily UPI spends are usually made to small merchants.

“There’s no MDR for a UPI transaction of ₹2,000 and below made using a Rupay credit card. For small merchants, this ticket size is sufficient as most payments they receive may not cross this limit. In my opinion, this segment is the most sensitive to MDR charges and they largely remain unaffected. Large merchants accept credit cards through POS machines and will pay MDR in any case,” said Dsouza.

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Updated: 27 Nov 2023, 04:10 PM IST