UPI cash withdrawals spell trouble for cards

Debit cards, primarily used to withdraw money from cash machines in India, are likely to lose their sheen once withdrawals are allowed through unified payments interface (UPI), making the homegrown payments system even more ubiquitous, experts said.

Currently, both online and offline payments can be made through UPI, although cash withdrawals are not allowed at automated teller machines (ATMs), a gap the Reserve Bank of India (RBI) wants to fill. To be sure, a clutch of banks does allow cardless cash withdrawal at their own ATMs for their customers. RBI wants to allow the use of UPI to make this feature more accessible.

Customers used debit cards to withdraw Rs. 2.55 trillion from ATMs in February, RBI data shows.

Merchants also prefer payments through UPI instead of cards since there is no merchant discount rate (MDR) charges on UPI. MDR is the charge paid by the merchant to the bank, card network and the point of sale provider for offline transactions and to the payment gateways for online purchases.

Payments industry executives said ATMs would need a software update, and the process would not involve large infrastructure costs for banks. At present, some new point of sale (PoS) terminals that run on Android have the capability to accept payments through cards as well as through dynamic QR codes.

While dynamic QR codes have the payment value embedded in them, static QR codes seen in most shops need the payee to manually input the value.

Private sector lender City Union Bank has already gone live with UPI-led cash withdrawals and has partnered with ATM maker NCR India. For such transactions, a customer needs to scan the QR code displayed on the ATM screen using any of the UPI apps and authorize the transaction using the UPI pin. The current plan is to limit such withdrawals to Rs. 5,000 per transaction with a limit of two transactions per day per account, industry executives said.