RBI approves expanding UPI transactions to allow credit payments
2 min read . Updated: 06 Apr 2023, 10:15 PM IST
PremiumUPI currently accounts for 75% of retail digital payments volume in India. In March alone, it recorded 8.7 billion transactions worth ₹14.1 trillion, showed data from NPCI.
MUMBAI : Individuals with pre-approved credit lines from banks will soon be able to use it to make payments over the Unified Payments Interface (UPI), the Reserve Bank of India (RBI) said on Thursday, setting the stage for new credit products over the homegrown payments platform.
Currently, UPI payments can be done between deposit accounts, sometimes intermediated by pre-paid instruments including wallets. Last June, the RBI also approved the use of Rupay credit cards on UPI, stoking hopes that it would eventually allow delivery of credit products through the payments mechanism.
On Thursday, RBI permitted transfer of funds to and from pre-sanctioned credit lines. “In other words, UPI network will facilitate payments financed by credit from banks. This can reduce the cost of such offerings and help in development of unique products for Indian markets," RBI said in a statement. Pre-sanctioned credit lines or pre-approved credit refers to credit that banks approve for customers after analyzing internal data.
UPI currently accounts for 75% of retail digital payments volume in India. In March alone, it recorded 8.7 billion transactions worth ₹14.1 trillion, showed data from the National Payments Corp. of India (NPCI).
Lauding the move, bankers and industry experts said the move would push lenders to come up with newer products to cater to this. “Allowing the operation of pre-sanctioned credit lines through UPI could help broad-base credit delivery and promote the development of new UPI-based revolving credit products," said Zarin Daruwala, cluster CEO, India and South Asia markets (Bangladesh, Nepal and Sri Lanka), Standard Chartered Bank.
Shivaji Thapliyal, head of research and lead analyst at Yes Securities said letting pre-sanctioned credit lines from banks opens up a new avenue of monetizing the UPI platform.
Banks, Thapliyal said, will now be able to offer credit products and, essentially, mimic credit card offerings from a credit perspective, without actually issuing a physical credit card or requiring bulky and expensive physical acceptance infrastructure.
“However, this may also include non-customers whose credit bureau and other information may have been analysed by the banks," he said.
Others said the cost of disbursing credit would reduce once this is operationalized.
“This will enable linking of UPI to credit lines that are approved by banks for payment transactions of both secured and unsecured lending products - like personal loan, working capital loan, etc. subject to current UPI limits. Cost of disbursement and usage can be reduced for the bank and the customer to use the credit product," said Mihir Gandhi, partner, payments transformation, PwC India.
Additionally, there is an opportunity for other card networks to work with banks and develop credit products and offer credit lines which can be linked to UPI for customer usage, he said.
Pranay Jhaveri, managing director, India and South Asia, Euronet said the step will not only enhance the convenience and flexibility of financial transactions but also pave the way for the further growth of UPI.
“With the added feature of pre-sanctioned credit lines, we can expect a surge in transaction volumes and a more seamless user experience, increasing the adoption of digital payments across the country," Jhaveri said.