Reserve Bank of India (RBI) Governor Shaktikanta Das on Thursday said that the central bank will expand the scope of United Payments Interface (UPI) by permitting operations of pre-sanctioned credit lines by banks through UPI. He said that this RBI move will encourage innovations, and would help reduce costs of digital offerings..
"We have been making a lot of announcements relating to UPI in past policies to widen and expand the footprint of UPI even further. UPI’s robustness has been leveraged to develop new products and features from time to time," Das said. "UPI network will facilitate payments financed by credit from banks. This can reduce the cost of such offerings and help in development of unique products for Indian markets."
Das added that the UPI has transformed retail payments in India. "UPI’s robustness has been leveraged to develop new products and features from time to time. Recently, RuPay credit cards were permitted to be linked to UPI."
"At present, UPI transactions are enabled between deposit accounts at banks, sometimes intermediated by pre-paid instruments including wallets. It is now proposed to expand the scope of UPI by enabling transfer to/from pre-sanctioned credit lines at banks, in addition to deposit accounts. In other words, UPI network will facilitate payments financed by credit from banks," Das said on Thursday.
How will this work
At present, UPI carries out 75 per cent of the retail digital payments volume in India. Currently, UPI transactions are enabled among deposit accounts at banks, sometimes intermediated by pre-paid instruments that include wallets.
RBI's announcement on UPI means that borrowers will now have access to digital credit lines from banks, which will be pre-approved. The RBI MPC said that the banks will have pre-approved by the banks.
Speaking at the media interactive session, Governor Das on Thursday said: "It is a pre-sanctioned credit line, which means the credit line is already sanctioned. The customers can operate it through UPI."
T Rabi Sankar, RBI Deputy Governor, further said that people can reduce the number of cards they carry and make transactions via UPI with the latest move on credit.
RBI deputy governor M Rajeshwar Rao also added that the new UPI measure of pre-sanctioned credit line is different from buy-now-pay-later (BNPL). "The guidelines are clear where the sanctioned limit into the account and then the transfer will take place and there is no linkage to the BNPL concept," Rao said at the press briefing on Thursday.
Industry reaction
Adding pre-sanctioned credit lines from banks to the system will definitely open up new avenues of monetising the UPI platform. RBI Governor Das has already said that the move will encourage innovations going ahead.
"The RBI announcement to allow access to pre-sanctioned credit lines via UPI is a milestone decision which could re-ignite the digital lending and BNPL space. With the restrictions which were earlier imposed on disbursements into prepaid wallets and cards from credit-lines and loans, many BNPL players had to resort to tenuous work-arounds to continue to deliver a seamless purchase experience. With the UPI channel opened up for access to credit lines, 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 advent and robust penetration of UPI has already created a value chain of ease accelerating the payments ecosystem in the economy. The pre-sanctioned line of credit will further revolutionise the digital banking ecosystem. This is a significant step to offer timely and easy credit to the last mile consumers helping them address their most urgent needs. Additionally, it is a game changer for payments industry to create a safer channel to assist credit payments while also curating different models and features to create exclusive and innovative product offerings to the end users,” said Swapnil Jambhale, COO and Co-founder, Safexpay.
"This will enable linking of UPI to credit lines that are approved by banks for payment transactions of both secured and unsecured lending products - like personal loan, working capital loan, etc. subject to current UPI limits. Cost of disbursement and usage can be reduced for the bank and the customer to use the credit product. Additionally, there is an opportunity for other card networks to work with banks and develop credit products and offer credit lines which can be linked to UPI for customer usage," said Mihir Gandhi, Partner - Payments Transformation, PwC India.
Earlier this week, the National Payments Corporation of India (NPCI) said the UPI has seen a massive jump in monthly transaction count as it touched 8.7 billion in March 2023, which is a 60 per cent growth. UPI’s total transaction value touched Rs 14.05 lakh crore, reporting a growth of 46 per cent. The data for February in terms of transaction count touched 7.5 billion while the transaction value touched Rs 12.35 lakh crore. In January 2023, UPI processed more than 8 billion transaction for the first time in a month, and Rs 12.98 lakh crore for the value of transactions.
For the entire fiscal (2022-23), UPI carried out around 84 billion transactions, amounting to Rs 139.09 lakh crore. In comparison to the previous year, the transaction volume rose 82 per cent and the value rose by 65 per cent during the same period, as per NPCI data.
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