Credit is an essential component of any economy, as it enables people to buy goods and services, invest in businesses and projects, and meet their financial needs. However, accessing credit in India can be a daunting task for many customers, especially those who lack a formal credit history or score. According to a report by the World Bank, only 10% of adults in India have a credit card, and only 7% have borrowed from a financial institution in the past year.

To address this gap, the National Payments Corporation of India (NPCI), the umbrella organization for retail payments in India, has launched a new feature called Credit on UPI. UPI, or Unified Payments Interface, is a real-time payment system that allows users to transfer money between bank accounts using a mobile app. UPI has been a huge success in India, with over 3 billion transactions worth over Rs 5 lakh crore in March 2023.

Credit on UPI enables customers to access pre-sanctioned credit lines from banks via UPI. Customers can choose from different credit products offered by banks, such as overdrafts, personal loans, or credit cards. Customers can also enjoy interest-free credit periods and flexible repayment options. Credit on UPI aims to revolutionize customer access to credit, foster a more streamlined and digital banking ecosystem, and drive economic growth and progress.

But what does Credit on UPI mean for the various stakeholders involved? Let’s take a look at the benefits and challenges of this feature for customers, banks, and the economy.

Benefits of Credit on UPI

• For customers: Credit on UPI offers a convenient and hassle-free way to avail credit for various purposes, such as paying bills, shopping online, or booking travel tickets. Customers do not need to fill lengthy forms or submit multiple documents to get credit. They can simply use their UPI ID or QR code to access their credit limit and pay with a single click. Customers can also compare and choose from different credit products offered by banks, based on their eligibility, interest rate, tenure, and other features. Customers can also enjoy interest-free credit periods and flexible repayment options.
• For banks: Credit on UPI provides an opportunity for banks to expand their customer base, increase their lending portfolio, and reduce their operational costs. Banks can leverage the data and insights from UPI transactions to assess the creditworthiness of customers and offer customized and personalized credit solutions. Banks can also reduce the cost of customer acquisition, verification, and servicing by using the digital infrastructure of UPI. Banks can also increase their revenue by charging fees or interest on the credit products they offer.
• For the economy: Credit on UPI can boost consumption, investment, and financial inclusion in the economy. By making credit more accessible and affordable, Credit on UPI can stimulate demand and spending in various sectors of the economy. It can also encourage more people to use digital payments and formal financial services, thereby increasing the efficiency and transparency of the financial system. Credit on UPI can also create more jobs and opportunities in the fintech sector, as more players enter the market to offer innovative and competitive credit products.

Challenges of Credit on UPI

• For customers: Credit on UPI may increase the temptation to borrow beyond their means and fall into a debt trap. Customers may also face issues such as fraud, data breaches, or technical glitches while using Credit on UPI. Customers need to be aware of the terms and conditions of the credit products they choose and exercise prudence and responsibility while borrowing.
• For banks: Credit on UPI may increase the competition and pressure for banks to offer attractive and innovative credit products. Banks may also face higher risks of default or delinquency if they lend to customers without proper due diligence or verification. Banks need to adopt robust risk management practices and ensure compliance with the regulatory norms and guidelines issued by the Reserve Bank of India (RBI) for Credit on UPI.
• For the economy: Credit on UPI may create systemic risks if it leads to excessive credit growth or leverage in the economy. Credit on UPI may also create regulatory challenges for the RBI in terms of monitoring and supervising the credit activities of banks and non-bank entities involved in UPI. The RBI needs to ensure that Credit on UPI does not compromise the stability and security of the payment system or the financial system.

Credit on UPI is a game-changing feature that has the potential to transform the way customers access and use credit in India. It can bring multiple benefits for customers, banks, and the economy, but it also requires careful management and regulation to avoid any adverse consequences. Credit on UPI is a reflection of India’s maturing fintech ecosystem that is constantly innovating and evolving to meet the needs and aspirations of its people.