By Sachin Castelino
The introduction of the Unified Payments Interface (UPI) has transformed the way we make digital, hassle-free payments from our mobile phones. To put numbers into perspective, a total of 9.33 billion UPI transactions worth ₹14.75 lakh crore were done in June 2023 alone.
While UPI has revolutionised the payment landscape — making it possible to pay at a supermarket or to a vegetable vendor in just a few clicks — it has now taken the next big leap by making credit available to customers. The recent decision by the Reserve Bank of India (RBI) to permit pre-sanctioned credit lines for users through UPI has the potential to bring about a revolution in credit disbursals within the country.
Additionally, with the launch of ‘conversational payments’ on UPI — as announced in the recently concluded RBI monetary policy — users will be able to engage in a conversation with an AI-powered system to initiate and complete transactions in a safe and secure environment.
Also, the introduction of offline payments in UPI through near field technology via UPI Lite is a promising development. Offline payments can be particularly useful in situations where internet connectivity might be limited, ensuring that users can still make transactions seamlessly.
Pre-approved credit line
Let us take a look at how UPI is making credit available. The bank-approved credit line via UPI is a pre-approved borrowing limit that users can access whenever needed. It operates in a similar fashion as making payments with a credit card, allowing users to repay the credit amount with interest at a later date. To avail this facility, UPI users can apply at their respective banks for RuPay credit cards.
Banks that provide pre-sanctioned credit lines will conduct a basic verification of the personal accounts to determine the eligible pre-sanctioned credit limit. This verification process helps banks assess the borrower’s creditworthiness, and determine the maximum credit limit that can be availed.
The verification procedure entails examining various aspects of the applicant’s financial background, such as their credit score, income history, borrowing record, repayment history, and more. After the application is authorised, individuals will be given a predetermined credit limit that corresponds to their individual financial information. They can subsequently utilise this credit limit for their UPI transactions.
Credit through UPI
Let us take a deeper look at how credit access through UPI works.
Credit on UPI is like an overdraft service available to RuPay credit card holders and this service can be accessed through various UPI apps. By opting for it, users can make payments on UPI apps even if they have insufficient funds in their bank accounts. They can conveniently clear their dues at a later date, subject to a reasonable interest rate.
This facility enables users to spend beyond their bank balance on UPI apps, and provides flexibility in managing their payments.
Upon activating a RuPay credit card on your UPI app, a separate account is created specifically for this service. In this account, a designated credit line is assigned to you, which can be utilised for making transactions through UPI. It is essential to understand that such an account is primarily intended for payments to merchants, and there are limitations on transferring funds to individuals using this account. The focus is on enabling convenient and timely payments for purchases from merchants rather than facilitating person-to-person fund transfers.
The move is touted to give an advantage to the consumer. How? Let’s take a look.
Alternative methods to determine creditworthiness
This will especially benefit those who face challenges in obtaining traditional credit. This innovative approach to credit assessment utilises modern and alternative methods to determine an individual’s creditworthiness, which can benefit those who may not have a well-established credit history.
No need to carry physical debit or credit card
One of the notable benefits is that users no longer need to possess a physical credit or debit card to avail themselves of this credit facility. The credit line is seamlessly integrated into their UPI-enabled mobile applications, simplifying the borrowing process, and eliminating the need to carry multiple cards.
Enabling customers to utilise credit lines through UPI for making purchases offers a high level of convenience and affordability. This option provides customers with the ease of paying for their purchases while also making them more financially feasible.
Integrating payments with access to credit
By leveraging UPI, users can enjoy the convenience of a widely accepted payment system while also having access to credit. This combination empowers them to fulfill various purchasing needs without any hassle. Whether it’s making online purchases, paying bills, or conducting day-to-day transactions, individuals can leverage their pre-sanctioned credit lines via UPI to meet their financial requirements.
Overall, this move opens up new avenues for consumers, offering them convenient access to credit and simplifying their financial transactions, all while leveraging the benefits of the UPI ecosystem. At the same time, such credit lines are processed faster as compared to traditional loans.
(The author is Sachin Castelino, Chief Strategy & Transformation Officer, In-solutions Global PVT Ltd, and the views expressed in this article are his own)
