RBI’s proposal to allow UPI transactions via pre-sanctioned credit lines is being seen as a positive move for BNPL and MSMEs by broadening access to credit and credit-based transactions.

The linking of loan accounts to UPI will bypass the need for physical infrastructure and allow inclusion of borrowers who don’t have access to cards. This is what most BNPL players currently do, albeit on their platforms.

‘’This will enable the linking of UPI to credit lines that are approved by banks for payment transactions of both secured and unsecured lending products like personal and working capital loans,” Mihir Gandhi, Partner - Payments Transformation, PwC India, said.

Restrictions on disbursements into prepaid wallets and cards from credit lines had hurt the business models of several BNPL players, who will now be able to extend credit at lower costs and turnaround times, industry players said.

It will also create a safe mechanism for urgent credit payments to MSMEs, who will be able to use their credit lines to pay vendors, and integrate lenders, borrowers, and borrowers’ payees on one platform.

Soumya Kanti Ghosh, Group Chief Economic Adviser at SBI, said that the initiative will enable SMEs to access credit in a hassle-free manner while boosting microcredit. The industry body Assocham too agreed that it would help millions of MSMEs better manage their trade finance.

Multiple benefits

“UPI can act like the credit card product for banks that don’t today issue credit cards. It has all the plus points of a credit card and also theUPI,” said Mandar Agashe, Founder and MD, Sarvatra Technologies.

For the same reason, it is likely to hurt credit card networks owing to the decline in utility of cards with the development of newer revolving credit products.

However, it also opens up an opportunity for other card networks to work with banks and develop credit products and offer credit lines which can be linked to UPI, believes Mihir Gandhi, Partner - Payments Transformation, PwC India

Banks on their part are happy as it will help them monetise the UPI network, which was difficult due to the non-allowance of MDR and limited access to link only RuPay cards. It will open up a revenue stream for banks and help them offset some of the investment costs being incurred for UPI payments, experts said.

Already there are calls from NBFCs, which continue to be major partners for fintech and payments platforms, to also allow them to extend pre-sanctioned credit through the platform, with Rajesh Sabhlok, MD, Asia Pacific, Vymo saying that permitting NBFCs that offer revolving credit products to retail and small business customers will help them expand their customer base and improve efficiency.