DIGITAL LIFE

RuPay: How India's new digital currency challenged giants Mastercard and Visa

India’s digital payment system, known as the Unified Payments Interface (UPI), has become a global benchmark in terms of transaction processing volume.

Launched nine years ago, UPI allows consumers and merchants to connect bank accounts directly via QR codes or phone numbers, without the need for traditional card networks. Operating almost like Pix, the system has been gaining momentum and currently processes more than 13 billion real-time transactions per month, which is equivalent to 71% of all digital transactions in India. In addition, it accounts for 36% of all consumer spending in the country.

The success of UPI has led the Indian government to expand its strategy to credit cards. In partnership with the local network RuPay, the system has become the only platform authorized to process credit card transactions through UPI.

As a result, RuPay processed Rs 638 billion in its first few months of operation, accounting for 28% of all credit card transactions in the country.

Efforts to popularize RuPay began in 2023, despite initial resistance from banks, who feared losing revenue from interchange fees. The strategy involved targeting smaller merchants, who had traditionally avoided credit card payments due to fees. Today, RuPay only charges fees for transactions over Rs 2,000.

Reshaping the local card market...In order to increase the adoption of RuPay, the Reserve Bank of India (RBI) took decisive action. One of the most significant actions was to order banks to offer customers the option of choosing a card network when purchasing or renewing their credit cards. In addition, exclusive agreements with global networks such as Visa and Mastercard were banned.

The National Payments Corporation of India (NPCI), which oversees the system, has also mandated that RuPay cards offer the same benefits and rewards as those from competing networks. These efforts have paid off: by June 2024, RuPay accounted for 50% of all credit cards issued in the country.

The impact on global giants...With the rise of UPI and RuPay, the credit card market in India is undergoing a transformation. The segment, which accounted for 43% of digital payments in 2018, is expected to fall to just 21% by 2024. Faced with falling market share, companies like Visa and Mastercard have been looking for alternatives to stay competitive.

In recent months, these giants have partnered with local fintechs to integrate their cards with UPI-enabled merchant terminals.

mundophone