By indianamerchantservices February 17, 2025
Introduction
The digital payments landscape in India has transformed significantly in recent years. With the rise of fintech solutions, small businesses now have multiple options to accept payments from customers. Among the most popular payment methods are Unified Payments Interface (UPI) and Card Payments (credit and debit cards). Both options offer convenience, security, and efficiency, but which one is better for small businesses in India?
This article explores the key differences between UPI and card payments, weighing the pros and cons of each method to help small business owners make an informed decision.
Understanding UPI and Card Payments
What is UPI?
Unified Payments Interface (UPI) is a real-time payment system developed by the National Payments Corporation of India (NPCI). It allows users to link multiple bank accounts to a single mobile application and make instant bank-to-bank transfers. UPI payments can be made using UPI IDs, QR codes, or phone numbers, eliminating the need for bank account details.
Popular UPI apps include Google Pay, PhonePe, Paytm, and BHIM UPI. UPI has seen tremendous adoption due to its ease of use, low cost, and interoperability across banks.
What are Card Payments?
Card payments involve transactions made using credit or debit cards issued by banks or financial institutions. These transactions are processed through payment networks such as Visa, Mastercard, and RuPay. Card payments require a Point of Sale (POS) machine, mobile card readers, or online payment gateways for processing transactions.
Debit cards allow customers to make payments directly from their bank accounts, while credit cards offer a line of credit that must be repaid later. Many businesses prefer card payments for their familiarity and global acceptance.
Comparing UPI and Card Payments for Small Businesses
1. Ease of Use
UPI is easier to set up and use compared to card payments. It requires only a smartphone and an internet connection, allowing payments to be made via UPI ID, mobile number, or QR codes. Card payments, on the other hand, require a POS machine or a mobile payment gateway. Customers need to swipe, tap, or enter their card details for online transactions, making it a slightly more complicated process. Overall, UPI is more accessible and easier to set up for small businesses.
2. Transaction Costs
One of the biggest advantages of UPI is that it has zero or very minimal transaction fees for most transactions. Although NPCI has proposed small fees for certain transactions, they remain much lower than card processing fees. Card payments, however, come with Merchant Discount Rate (MDR) charges, typically ranging from 1% to 3% per transaction. Additionally, businesses using POS machines must consider rental and maintenance costs. This makes UPI a more cost-effective option for small businesses.
3. Transaction Speed
UPI enables real-time bank-to-bank transfers, with funds instantly credited to the recipient’s account. Card payments, while relatively fast, can take 1 to 3 working days for settlement into the merchant’s account. Credit card payments may also involve additional processing time. For businesses that rely on immediate cash flow, UPI offers a significant advantage.
4. Security and Fraud Protection
Both UPI and card payments have robust security measures in place. UPI employs multi-layered security with two-factor authentication (2FA) and requires a UPI PIN for transactions. It also has a lower risk of chargebacks. Card payments, on the other hand, use chip and PIN technology for enhanced security. However, the ability to dispute transactions via chargebacks can sometimes lead to financial losses for merchants. Card-not-present transactions (such as online payments) also carry a higher risk of fraud. UPI wins in terms of lower chargeback risks and strong security measures.
5. Customer Preference and Adoption
UPI has seen massive adoption in India, with over 10 billion transactions per month. Customers prefer it due to its speed and ease of use. Card payments remain popular, especially for high-value transactions, as many customers use credit cards to earn rewards or opt for EMI options. However, in terms of widespread use and preference, UPI leads the way, especially for everyday transactions.
6. Offline Payment Capability
UPI has the advantage of working even without an internet connection through UPI Lite, which allows small transactions via SMS. Card payments, on the other hand, rely on POS machines, which may not function during network failures. Contactless cards are only useful when the terminal is powered. Therefore, UPI offers better reliability in areas with network issues.
7. Suitability for Different Business Types
UPI is ideal for small businesses, street vendors, and local shops that deal with frequent low to mid-value transactions. On the other hand, card payments are better suited for restaurants, retail stores, and businesses handling large transactions. Credit cards also offer benefits such as EMI options, making them more attractive for high-ticket purchases. UPI is a clear winner for smaller businesses, while card payments remain essential for higher-value transactions.
8. International Transactions
UPI currently has limited international acceptance, though efforts are being made to expand cross-border UPI payments. Card payments, however, are globally accepted, making them essential for businesses catering to international customers. For businesses dealing with foreign clients, card payments are the better option.
Which One Should Small Businesses Choose?
For most small businesses in India, UPI is the better choice due to its zero-cost transactions, faster settlements, and ease of use. However, businesses that deal with higher-value transactions, international customers, or those offering EMI options should also consider accepting card payments.
If cost-saving, instant settlements, and accessibility are priorities, UPI is the best option. However, businesses that cater to high-value transactions or international customers should integrate card payments alongside UPI for a comprehensive payment solution. By leveraging both payment methods, small businesses can offer a seamless and flexible payment experience, enhancing customer satisfaction and boosting sales.