Shaktikanta Das, Governor of the Reserve Bank of India (RBI), announced on Thursday that the central bank will broaden the purview of the United Payments Interface (UPI) by allowing banks to operate pre-approved credit lines through UPI. He stated that the RBI’s action will encourage innovation and help lower the costs of digital offerings.
We have made numerous announcements regarding UPI in previous policies in order to broaden and extend the footprint of UPI even further. “The robustness of UPI has been used to develop new products and features on a regular basis,” Das explained. “The UPI network will facilitate payments financed by bank credit.” This can lower the cost of such offerings while also assisting in the creation of unique products for Indian markets.”
Das went on to say that UPI has revolutionised store payments in India. “UPI’s robustness has been used to develop new products and features on occasion.” RuPay credit cards were recently allowed to be connected to UPI.” UPI transactions are currently permitted between bank deposit accounts, sometimes via pre-paid devices such as wallets. In addition to deposit accounts, it is now suggested to broaden the scope of UPI by allowing transfers to/from pre-approved credit lines at banks. In other terms, the UPI network will enable payments financed by bank credit,” Das said on Thursday.
How will this function?
At the moment, UPI handles 75% of all store digital payments in India. Currently, UPI transfers are permitted between bank deposit accounts, sometimes via pre-paid instruments such as wallets. With the RBI’s statement on UPI, borrowers will now have access to pre-approved digital credit lines from banks. The RBI MPC stated that the institutions will have pre-approval.
“It is a pre-sanctioned credit line, which means the credit line is already sanctioned,” Governor Das said during a media interactive session on Thursday. Customers can use UPI to control it.”
With the latest credit move, T Rabi Sankar, RBI Deputy Governor, added that people can reduce the amount of cards they carry and make transactions via UPI.
M Rajeshwar Rao, deputy governor of the Reserve Bank of India, also stated that the new UPI measure of pre-approved credit limit differs from buy-now-pay-later. (BNPL). “The guidelines are clear where the sanctioned limit into the account and then the transfer will occur and there is no linkage to the BNPL concept,” Rao said at a press conference on Thursday.
Industry response
Adding pre-approved credit lines from banks to the system will undoubtedly open up new revenue streams for the UPI network. RBI Governor Das has already stated that the move will promote future innovation.
The RBI’s decision to enable access to pre-approved credit lines via UPI is a watershed moment that could re-ignite the digital lending and BNPL markets. With the restrictions previously placed on credit-line and loan disbursements into prepaid wallets and cards, many BNPL players were forced to rely on shaky workarounds to continue to provide a seamless purchase experience. “With the UPI channel open for credit line access, the point-of-purchase credit experience becomes seamless and opens up avenues to use credit across a much larger merchant base,” said Harish Prasad, Head of Banking, India, FIS.
The introduction and widespread adoption of UPI has already established a value chain of convenience, accelerating the economy’s payments ecosystem. The pre-approved line of credit will further shake up the digital financial ecosystem. This is a significant step towards providing timely and simple credit to last-mile customers, allowing them to address their most pressing needs. Furthermore, it is a paradigm changer for the payments industry to create a safer channel to assist credit payments while also curating various models and features to create exclusive and novel product offerings to end users,” said Swapnil Jambhale, COO and Co-founder, Safexpay.
This will allow UPI to be linked to credit lines authorised by banks for payment transactions of both secured and unsecured lending products – such as personal loans, working capital loans, and so on – subject to current UPI limits. The cost of disbursement and usage of the credit product can be decreased for both the bank and the customer. “There is also an opportunity for other card networks to collaborate with banks to develop credit products and offer credit lines that can be linked to UPI for customer use,” said Mihir Gandhi, Partner – Payments Transformation, PwC India.
The National Payments Corporation of India (NPCI) announced earlier this week that the UPI has seen a massive increase in monthly transaction tally, reaching 8.7 billion in March 2023, a 60% increase. The overall transaction value of UPI reached Rs 14.05 lakh crore, representing a 46 percent increase. The transaction tally for February reached 7.5 billion, while the transaction value reached Rs 12.35 lakh crore. For the first time in a month, UPI handled more than 8 billion transactions in January 2023, with a total value of Rs 12.98 lakh crore.
UPI processed approximately 84 billion transactions totaling Rs 139.09 lakh rupees during the fiscal year (2022-23). According to NPCI statistics, transaction volume increased by 82% and value increased by 65% over the previous year during the same time.