RBI accepts extending UPI transactions to allow credit payments

Individuals with pre-approved credit lines to banks will shortly be able to use it to make payments over the Unified Payments Interface (UPI), the Reserve Bank of India (RBI), placing the stage for new credit services over the homegrown payments system. Currently, UPI payments can be performed 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.

RBI permitted the transfer of funds to and from pre-sanctioned credit lines. “In other words, the UPI network will facilitate payments financed by credit from banks. This can reduce the cost of such offerings and help in the 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 Rs 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 analyzed by the banks," he said