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:

  1. Credit Line on UPI
  2. UPI LITE X and Tap & Pay
  3. Hello! UPI - Conversational Payments on UPI
  4. 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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