How to use credit cards smartly to earn rewards on UPI transactions

Mint

14 hours ago

UPI has become the most preferred mode of digital payments in India, quick, seamless, and accepted almost everywhere. What if you could turn those everyday QR code scans into cashback?
Thanks to a move by the Reserve Bank of India (RBI) in 2022, you can link RuPay credit cards to the Unified Payments Interface (UPI) and earn rewards on your daily transactions. Since then, most major banks have introduced RuPay variants of their credit cards, including versions of their Visa or MasterCard cards, which can be used for UPI payments. Some have even launched exclusive UPI credit cards offering 1.5–5% cashback.
This story breaks down how to effectively use credit cards to earn rewards on UPI transactions and lists some of the most rewarding cards in this category.
All about UPI credit card
A UPI credit card allows users to pay merchants via UPI using their credit card instead of a bank account. However, these payments are restricted to customer-to-merchant (C2M) transactions only, not peer-to-peer (P2P) transfers. This limitation prevents users from misusing credit by revolving credit and sending funds to the bank accounts of friends or family.
When attempting to pay a UPI ID or scan a QR code linked to a personal account rather than a merchant, the credit card option will not appear. This means you stand to earn rewards while paying a grocery store or an auto driver through their business UPI QR using your credit card, but you cannot use this method to send rent to your landlord.
UPI credit cards are especially helpful to users in tier-II and smaller cities, where many small merchants do not have POS machines, but most accept UPI.
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Why aren't all merchants accepting it yet?
Despite a strong start, UPI payments via credit cards have seen some pullback from merchants due to merchant discount rate (MDR)—a fee businesses must pay to banks or card networks for processing such payments. Regular UPI transactions don't carry this charge, but credit card-based UPI payments do.
'Almost all payment gateways charge a normal card's MDR if the payment amount exceeds ₹2,000 per transaction. Shops like medical stores and local grocery stores, where the bill can be more than ₹2,000, are disabling the RuPay UPI option to avoid MDR charges," said Sumanta Mandal, founder, TechnoFino, a digital platform.
However, since daily UPI payments are made to small merchants, these are generally under ₹2,000 per transaction.
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Can I use my existing cards?
Customers with credit cards from networks like MasterCard or Visa who want to make UPI payments through their credit cards can request their bank to issue a virtual Rupay variant of the same card for that purpose. While it's a separate card, the credit limit is part of the overall limit of the primary card.
In the past year, some banks have launched credit cards exclusively designed to reward UPI spending such as HDFC Tata Neu, Yes Bank Klick, Axis Bank Supermoney, and Jupiter Edge CSB.
Of these, Axis Supermoney card and Yes Bank Klick card used on Kiwi app currently offer the best reward rates up to 3% and 5%, respectively, as per Kashif Ansari,an assistant professor of finance at OP Jindal University and a credit card expert. 'HDFC Tata Neu used to be the most rewarding, but Axis Supermoney and Kiwi are far superior now," according to Ansari
Mandal said, 'Both Yes Bank Klick and HDFC Tata Neu give 1.5% value back when used on partner UPI apps. However, the Tata Neu app is slow."
Both these cards are launched in association with third-party UPI apps–Yes Bank and Kiwi and Axis Bank and Supermoney (Flipkart owned)–and offer highest rewards only when used on these apps.
Also Read: UPI Circle lets you make payments for friends and family. Here's how it works.
Yes Bank Klick–Kiwi card rewards on scan and pay UPI payments made through Kiwi app. The base reward rate is 1.5%, which increases to 2% if you opt for Kiwi Neon membership.
The major restrictions on this card are that it rewards on a minimum ₹100 payment and that there are many exclusions. Categories that don't earn rewards or add to spending milestones include utilities, insurance, jewellery, financial institutions, educational institutions, government services, and retail outlets, such as apparel stores.
Axis Supermoney card rewards a flat 3% cashback on all scan and pay UPI payments done on the supermoney app. However, the maximum monthly cashback is capped at ₹500. This means you earn cashback on eligible UPI spends of upto ₹16,667 every month. The upside with this card is that it is a physical card and hence can be used for offline transactions also that earn 1% cashback, subject to the monthly ₹500 cap. All other non-UPI online payments also earn 1% cashback.
Several spending categories are excluded from earning rewards on this card as well, including fuel, jewellery, cash withdrawal, wallet load, insurance, education, government services and rent.
Ansari said UPI credit cards are meant for small regular payments made to small merchants who don't offer POS services. Hence, such exclusions are expected.