Borrowers to Access Digital Credit Lines from Banks Via UPI

The Unified Payments Interface (UPI) may now be used by borrowers to get digital credit lines from banks, according to a proposal made by the Central Bank of India (RBI) on Thursday. On April 6,2023, RBI Governor Shaktikanta Das made this declaration while delivering the outcomes of the bimonthly monetary policy committee meeting.

Nowadays, UPI transactions can take place between bank deposit accounts and are occasionally mediated by prepaid devices like wallets. In addition to deposit accounts, it is currently suggested to broaden the use of UPI by facilitating transfers to/from pre-approved credit lines at banks. In other words, according to RBI, the UPI network will enable payments financed by bank credit.

If this takes effect, borrowers will have direct access through UPI to digital credit lines, which are primarily provided by purchase now, pay later companies. It should be emphasised that UPI, a well-known payment system, presently processes 75% of all digital retail purchases in India. In keeping with India's digitalization objectives, it has already been utilised to create a number of goods and services, including the recent approval for RuPay credit cards to be linked to UPI.

This may lower the price of such items and aid in the creation of distinctive goods for Indian consumers. The regulator stated that more instructions in this respect will be released separately. The RBI's declaration that pre-approved credit lines will be accessible via UPI is a significant decision that might re-ignite the BNPL and digital lending industries. Due to the prior limits on credit lines and loans' and prepaid wallets' and cards' ability to receive payments, several BNPL participants were forced to use flimsy workarounds in order to keep providing a smooth shopping experience. The point-of-purchase credit experience is made frictionless and opens up avenues for using credit across a much bigger merchant base now that the UPI channel has been opened up for access to credit lines. According to Harish Prasad, Head of Banking, India, FIS, this might boost the BNPL lending sector's transformative growth.