BL Explainer. Credit on UPI - Can you get credit against your UPI account?

‘Credit on UPI’ seems to be the new buzzword in the fintech space, bringing together conversations surrounding both payments and digital lending. Digital lenders have been actively using UPI railroads for data collection and customer access, with the aim of converting them to digital borrowers. The introduction of credit on UPI integrates credit into the UPI ecosystem, thus making payments an organic distribution channel of easy and ready credit access. Businessline dives deeper into what it means for the system and users of UPI.

• Also read: Lower middle class shows growing interest in ‘Credit on UPI’: Home Credit India study

What does ‘credit on UPI’ mean?

Credit on UPI means offering credit products through the UPI network, either directly into the bank account or by means of credit-based payments. The functionality is largely spearheaded by two innovations --pre-approved credit lines on UPI and the facility to link credit cards to a UPI handle. Prior to this, only savings and overdraft accounts and pre-paid wallets could be linked to UPI.

How does UPI on credit cards work?

RBI has allowed linking of credit cards on the RuPay network to any UPI ID for seamless and digitally-enabled credit card payments. This allows customers to make credit card payments at more access points and gives merchants the opportunity to accept credit card payments using asset lite QR codes, without the need for physical cards or card PoS machines. It is also expected to significantly increase the number of PoS touchpoints for customers to make credit card-based payments, further boosting adoption of cards.

• Also read: NBFCs, fintechs seek permission to offer credit on UPI

What are pre-sanctioned credit lines on UPI?

RBI has allowed banks to offer pre-sanctioned credit lines through UPI to their existing customers, be it individuals or businesses. It facilitates the availability of low-ticket, high-volume retail loans by leveraging technologies such as data analytics and artificial intelligence to identify and provide pre-approved credit to customers and merchants engaged in significant UPI-based digital payments on a real-time basis. The interest rates on credit lines are typically lower than that on credit cards, making this a relatively cost-effective way to access credit.

Who is eligible for credit on UPI?

For credit card on UPI, card holders can link their card number to any UPI handle or account and add it as a payment method on the platform. For access to credit lines, users need to submit an application to the bank, basis which a pre-approved credit line is extended to the UPI and bank account of the holder. The credit line or limit is based on the financial information of the user, including eligibility, income, credit score, and repayment history.

How do lenders benefit from credit on UPI?

The integration with UPI payments or credit cards provides great insights into customers’ spending behaviour or patterns. This allows banks and NBFCs to start engaging with customers through small ticket payments and loans and then increasing credit lines based on individual behaviour, credit quality and repayment patterns. Further, the KYC process for UPI, spend limits and authentication mechanisms such as the UPI PIN ensure that payments made within the UPI network are secure and transparent, thus helping prevent unauthorised access. Insights into credit line status, utilised credit line, and existing EMI details also help lenders customise and personalise credit lines as per borrowers’ requirements.

What is the benefit to retail customers?

Credit on UPI allows customers to avail pre-approved, instant and flexible credit lines based on their registered mobile numbers. Both credit cards and credit lines can be linked to any UPI application and the proceeds used for any regular UPI payments, including e-mandates or AutoPay, across multiple UPI apps. The credit can be availed as a flexible amount, with interest payable only on the utilised credit, with varying tenures of loan and repayments, including the option to convert transactions to EMIs. Further, any transaction disputes can be resolved through Online Dispute Resolution (UPIHelp) available on all UPI platforms.

How many banks and apps have rolled out credit on UPI?

Currently, banks such as Axis Bank, HDFC Bank, ICICI Bank, Punjab National Bank, Kotak Mahindra Bank and State Bank of India are testing this feature within limited user groups on a pilot basis. The UPI apps live in this segment include NPCI’s BHIM, Google Pay, PayTm and HDFC Bank’s Payzapp.