RBI Rolls Out Credit Lines On UPI: An In-Depth Detail
The digital payments boom of India is no less than a celebrated story for its massive impact on rapid organic adoption and financial inclusion. But not long back, a significant majority of Indians were even devoid of a bank account to send and receive payments, and save money. The less educated, the poor, women, the out-of-labour force, the economically disadvantaged, and people living in rural areas and areas that were hard to reach constituted a big population of those without a bank account then.
To start with, India was a bit late to the world of digital
payments (such as the concepts of neo banking, mobile wallets, and payment
gateway). Digital wallets were introduced by PayPal in 1998 in the United
States. It took India more than a decade when Unified Payment Interface (UPI)
was launched on August 25, 2016, to facilitate secure and real-time money
transfer for its citizens (person-to-person and person-to-merchant
transactions). A few years later, UPI has emerged as the biggest and most
successful financial stories of the country.
In its continuing efforts to revolutionize the Indian financial
market, the Reserve Bank of India announced 4 new products on September 4, 2023:
- Credit Line on UPI
- UPI LITE X and Tap & Pay
- Hello! UPI - Conversational
Payments on UPI
- BillPay Connect - Conversational
Bill Payments
The purpose of introducing Credit Line on UPI is to expand
the scope of UPI by the inclusion of credit lines as a funding account.
Previously, it was limited in terms of UPI to savings accounts, prepaid
wallets, credit cards, and overdraft accounts.
Under the new facility, payments that are facilitated via a
pre-approved credit line issued to individuals by a Scheduled Commercial Bank,
with the prior consent of the individual customer, would be enabled for
transactions that happen through the UPI system.
For instance, an Indian bank such as HDFC or AXIS bank can
pre-approve some of its customers based on their creditworthiness, transaction
history, and other relevant factors. These customers can leverage this
pre-approved limit to make purchases on credit (without having a physical
credit card) and pay back to their bank within a stipulated time. They will
have the option of choosing convenient instalment plans to repay the utilized
credit amount.
The repayment cycle, interest levied, and other associated terms
& conditions will be pre-defined by the respective banks who are offering
the pre-approved credit lines. Meanwhile, UPI will act as a mediator, a medium
of credit payment. Till date, no sanction limit has been defined for this
product (credit line).
Apps and banks such as HDFC Bank, GPay, Paytm, Punjab National
Bank, State Bank of India, and AXIS Bank are already onboarded on this journey,
and many others are expected to join them soon.
Purposes & Benefits Of Rolled Out Credit Lines On UPI
ü Instant access to credit for every
eligible citizen
ü Process of availing and utilizing
credit lines will be greatly expedited
ü Banks to mimic credit card offerings
without issuing a physical credit card
ü Linking of UPI for payment
transactions of both unsecured and secured lending products
ü Vision to provide a unique digital
identity to every resident citizen
ü Increased sales for merchants to drive
economic growth, generating more employment opportunities
ü Frictionless point-of-purchase credit
experience for consumers
ü Banks can earn interest from the rolled-out
credit lines
ü Enhance the flow of small ticket size
loans in the market
ü Expand the consumer credit market in
India
ü Consumer can make purchases without
waiting for their next pay check
ü Excellent choice for people without
debit and/or credit cards
ü A financial safety net in times of
emergencies or unexpected expenses
ü Positive impact on the user's
financial profile and credit score (with responsible use)
Conclusion
As UPI scales at an unprecedent pace, it will have to sustain its
phenomenal growth rate to remain technologically relevant and competitive over
the coming decades. As of now, the UPI remains an out-of-the-box platform to
make every Indian friendly to innovation, technology, and of course digital
payments. With an experiential growth expected for customer-driven financial
products, the concepts of emerging technologies and sustainable solutions such
as neo banking and payment
gateway are here to stay as well.
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