The Reserve Bank of India (RBI) has announced that it will expand the use of United Payments Interface (UPI) by allowing pre-sanctioned credit lines by banks through UPI. RBI Governor Shaktikanta Das said that this move will promote innovation and reduce the costs of digital services. This article discusses the details of the announcement, how it will work, industry reactions, and the recent growth of UPI.
Expanding the Use of UPI
RBI Governor Shaktikanta Das announced that the central bank will expand the use of UPI by allowing operations of pre-sanctioned credit lines by banks through UPI. This will promote innovation, reduce the costs of digital offerings, and facilitate payments financed by credit from banks. The RBI aims to expand the scope of UPI to enable transfers to and from pre-sanctioned credit lines at banks, in addition to deposit accounts. This will encourage banks to develop unique products for the Indian market, leveraging UPI’s robustness to develop new products and features.
How Pre-Sanctioned Credit Lines will Work
At present, UPI carries out 75% of retail digital payments volume in India, but UPI transactions are currently only enabled among deposit accounts at banks, sometimes intermediated by prepaid instruments like wallets. The RBI's announcement on UPI means that borrowers will now have access to digital credit lines from banks, which will be pre-approved. Customers will be able to operate pre-sanctioned credit lines through UPI, reducing the number of cards they carry and enabling them to make transactions via UPI.
Difference from Buy-Now-Pay-Later
RBI Deputy Governor M Rajeshwar Rao emphasized that the new UPI measure of pre-sanctioned credit lines is different from buy-now-pay-later (BNPL) and clarified that there is no linkage to the BNPL concept. The guidelines are clear where the sanctioned limit is transferred to the account, and then the transfer takes place.
Industry Reactions
Harish Prasad, Head of Banking, India, FIS, said that the RBI's decision to allow access to pre-sanctioned credit lines via UPI is a milestone decision that could reignite the digital lending and BNPL space. The opening of the UPI channel for access to credit lines could make the point-of-purchase credit experience seamless, thus opening up avenues to use credit across a much larger merchant base. Swapnil Jambhale, COO and Co-founder, Safexpay, said that this is a significant step to offer timely and easy credit to the last-mile consumers, helping them address their most urgent needs. It is also a game-changer for the payments industry to create a safer channel to assist credit payments while curating different models and features to create exclusive and innovative product offerings to the end-users.
Recent Growth of UPI
Earlier this week, the National Payments Corporation of India (NPCI) reported that the UPI has seen a massive jump in monthly transaction count, touching 8.7 billion in March 2023, which is a 60% growth. UPI’s total transaction value touched Rs 14.05 lakh crore, reporting a growth of 46%. In February, the transaction count touched 7.5 billion, while the transaction value touched Rs 12.35 lakh crore. In January 2023, UPI processed over 8 billion transactions for the first time in a month, and Rs 12.98 lakh crore for the value of transactions. For the entire fiscal year 2022-23, UPI carried out around 84 billion transactions, Industry experts say that this move by RBI will have a significant impact on the payments and lending landscape in India, as it opens up new avenues for digital lending, including BNPL and other forms of point-of-sale credit.
Benefits of the RBI's Move
The Reserve Bank of India's decision to expand the scope of UPI by permitting operations of pre-sanctioned credit lines by banks through UPI is expected to have several benefits, including:
- Encouraging Innovation: The move will encourage innovation in the digital lending space, as fintech companies and banks will be able to develop new products and features that can be offered through UPI.
- Reducing Costs: By allowing transfer to/from pre-sanctioned credit lines at banks, in addition to deposit accounts, the cost of such offerings can be reduced, which is expected to make them more accessible and affordable for Indian consumers.
- Making Transactions Easier: This move is expected to make transactions easier for Indian consumers, as they will be able to reduce the number of cards they carry and make transactions via UPI.
- Boosting the Digital Lending Ecosystem: The pre-sanctioned credit lines from banks are expected to open up new avenues for digital lending in India, including BNPL and other forms of point-of-sale credit.
Final Thoughts
Overall, the Reserve Bank of India's decision to expand the scope of UPI by permitting operations of pre-sanctioned credit lines by banks through UPI is a significant step forward in the digital payments and lending landscape in India. It is expected to encourage innovation, reduce costs, make transactions easier, and boost the digital lending ecosystem in India. With UPI already carrying out 75% of the retail digital payments volume in India, this move is expected to further strengthen UPI's position as a leading digital payments platform in the country.
