India’s Unified Payments Interface (UPI) has fundamentally reshaped the nation’s financial landscape, revolutionizing how millions conduct daily transactions. A significant leap in this digital evolution has been the integration of RuPay credit cards with UPI, a move lauded for extending the convenience of credit to an unprecedented scale of everyday payments. This innovation has successfully addressed a long-standing challenge: transforming credit cards from tools for infrequent, high-value purchases into a ubiquitous payment instrument. However, this surge in accessibility and usage, primarily for low-value transactions, has simultaneously unearthed a complex commercial dilemma for banks and fintech firms: how to translate high engagement into sustainable profitability within an ecosystem largely defined by minimal transaction costs.
The numbers vividly illustrate this dynamic shift. RuPay credit cards linked to UPI now account for a substantial four out of every ten credit card transactions in India. Yet, this impressive transaction volume translates to only about 8% of the total spending, according to an analysis by Bernstein in late 2025. Data from the Union finance ministry for April-October 2024-25 revealed that RuPay credit cardholders executed 750 million transactions, amounting to approximately ₹63,825.8 crore. This stark contrast between transaction frequency and total value underscores the core challenge facing the payment ecosystem.
Fintech pioneers are observing a dramatic change in consumer behavior. Siddharth Mehta, co-founder of the fintech firm Kiwi, notes that credit-on-UPI is prompting users to transact over 20 times a month, a significant leap from the four or five monthly transactions typical for conventional credit cards. While the average ticket size for these UPI-linked credit payments is considerably lower, the sheer frequency of use means that the average monthly spend per user still remains robust, often ranging between ₹15,000 and ₹20,000. This indicates a successful shift towards integrating credit into daily micro-transactions, from buying groceries to paying for small services.
However, this operational success comes with inherent financial complexities. Low-value credit-on-UPI transactions, while beneficial for consumer adoption, can become disproportionately expensive for issuers when scaled across millions of transactions. Ramanathan R.V., co-founder of the credit cards-as-a-service (CCaaS) platform Hyperface, explains that even a modest per-transaction vendor fee, typically between 25 to 50 paise paid by banks to core card vendors, accumulates rapidly. If customers are using their cards daily for payments as small as ₹50 or ₹100, the economic margins for the issuing bank are squeezed considerably, often before the bank has had a chance to generate significant revenue from the account.
The monetization riddle deepened after the Reserve Bank of India (RBI) gave its approval for credit-on-UPI in June 2022, with RuPay cards leading the charge. UPI’s established zero-Merchant Discount Rate (MDR) regime for many transactions, which eliminates the fee a merchant pays to accept digital payments, had already propelled the adoption of QR code payments. The National Payments Corporation of India (NPCI), which operates UPI and RuPay, further facilitated adoption by implementing a nil MDR for RuPay credit card transactions up to ₹2,000 at eligible small offline merchants. This policy, while boosting merchant acceptance and consumer convenience, fundamentally alters the traditional revenue model for payment providers.
Zero MDR, while a boon for merchants and consumers by keeping transaction costs low, exerts immense pressure on the revenue streams of banks, fintechs, payment processors, and card networks that invest in building and maintaining the digital payment infrastructure. In a conventional credit card transaction, such as a Mastercard or Visa swipe, merchants typically pay an MDR of 2% to 3%. On a ₹100 transaction, this translates to ₹2 to ₹3, which is then distributed among the issuing bank, acquiring bank, card network, and payment processor. The issuing bank typically receives the largest share due to its role in providing the credit line and absorbing repayment risk. In contrast, for a ₹100 RuPay credit-on-UPI payment, the merchant pays nothing, yet the issuer still incurs operational costs, including vendor fees and backend processing.
To mitigate this, the NPCI has actively incentivized adoption among issuers. Industry estimates from mid-2025 indicated that the NPCI was paying banks 10 to 12 basis points on the transaction value, depending on volume. While this provides some relief, it does not fully offset the operational costs and the lack of interchange revenue that banks would typically earn from traditional card transactions. The real challenge for card issuers lies not just in the individual transaction but in fostering a profitable customer relationship over the long term. Banks primarily earn revenue through interchange fees (on eligible transactions), interest on outstanding balances, annual fees, late-payment charges, equated monthly installment (EMI) conversion fees, and cross-selling other financial products like loans or insurance. The zero-MDR model for small transactions can only be absorbed if the account eventually generates sufficient downstream revenue to compensate for the thin economics of frequent, small-ticket usage.
Despite these profitability concerns, government-backed RuPay holds a significant strategic advantage over international giants like Visa and Mastercard: it is currently the only credit card network integrated with UPI. This unique position allows banks to extend credit card acceptance to millions of QR-code merchants who previously lacked the infrastructure for traditional card payments. This has made RuPay credit cards a vital tool for banks to acquire new customers and enhance engagement with existing ones. Fintechs, leveraging their extensive user bases, are also keen to issue more RuPay cards, driving consistent spending within their ecosystems. Ramanathan of Hyperface notes that banks are not tied to any single network and respond to incentives and customer demand, observing that RuPay is rapidly gaining ground against Mastercard and Visa among new credit card customers. Industry estimates suggest RuPay now commands nearly 40% of new credit card issuances in the country.
However, the sheer volume of low-value transactions can present operational and customer experience challenges. Chinmaya Desai, co-founder and chief business officer of CCaaS platform Falcon, points out that the thin economics of the low-value merchant segment, coupled with a cluttered card statement featuring numerous small-ticket entries, could become a "hygiene concern" for both banks and customers.
The durability of this model is being tested amidst India’s rapidly expanding credit card market. Over the past decade, the number of active credit cards has surged from under 30 million to over 120 million by May 2026, with monthly spends reaching approximately ₹2.02 trillion. Within this burgeoning market, RuPay is estimated to hold around 20% of the domestic credit card market, while Visa remains the dominant player and Mastercard accounts for most of the remainder.
Mehul Mistry, Senior Vice President at banking technology company Zeta, highlights the product’s intense usage. RuPay cards linked to UPI are witnessing 3.5 to 4 times more monthly transactions compared to traditional cards, albeit with a significantly lower average ticket size. This signals a fundamental shift from credit cards being used for occasional large purchases to becoming an instrument for daily spending. Mistry emphasizes that the long-term upside extends beyond merely migrating users from bank-account-based UPI or debit cards. It represents a potential for incremental credit consumption as UPI-linked credit reaches merchant categories that historically saw minimal card usage. The ultimate payoff for banks, he argues, will come from higher customer engagement, interchange fees on eligible transactions, interest income from revolving credit, and the successful cross-selling of other financial products like loans, deposits, and insurance. Fintechs, on their part, aim to monetize through distribution, revenue-sharing partnerships, and by maintaining an active user base within their digital ecosystems.
As India continues its aggressive push towards digital payments and financial inclusion, the RuPay-on-UPI model represents a critical experiment. It democratizes access to credit and accelerates digital adoption, but the sustainability of its current profitability model remains a key area of focus for all stakeholders. The coming years will likely see further innovation in revenue models, potentially including tiered MDRs for specific transaction values, enhanced data monetization strategies, and more sophisticated loyalty programs, as the ecosystem strives to balance widespread utility with financial viability.
