How you can get credit line against your UPI account           

The Unified Payments Interface (UPI) has revolutionised how we handle financial transactions, offering a seamless, instant payment solution. With the growing reliance on UPI for everyday transactions, an intriguing question arises: Can you get credit against your UPI account? With the help of UPI one can make instant payment transfer using smartphones.

Shikhar Aggarwal, chairman of BLS E-Services, said, "While UPI itself doesn’t provide credit, various banks and fintech players are exploring this platform to offer loans and credit lines by analyzing users’ UPI transaction histories and banking data. In fact, some fintech companies also provide microloans directly through UPI apps. This is an emerging trend in the digital lending space and is highly beneficial for those without traditional credit histories.”

How it works

Credit on UPI functions through pre-approved credit lines offered by banks or financial institutions, which are integrated with the UPI platform. This setup allows users to access a specified amount of credit, which they can use to make payments through their UPI-enabled apps. Essentially, it operates on a "buy now, pay later" model but through the familiar UPI interface.

Kunal Varma, CEO and Co-founder at Freo, says, “You can get credit against your UPI account through the integration of credit lines into the UPI (Unified Payments Interface) system. This innovation is a significant step in digital finance in India, aiming to make credit more accessible to a wider audience, especially those who may not have access to traditional banking services or credit cards.”

Operational model

When a user makes a payment using their UPI app, they have the option to choose their credit line as the source instead of their bank account. The amount spent is then deducted from their pre-approved credit limit. This system is seamless and does not require the physical use of a credit card, making digital transactions straightforward and quick.

The benefits

Increased accessibility: By leveraging the widespread use of UPI, credit lines become accessible to a larger segment of the population, including those who do not qualify for traditional credit cards.

Convenience: Users can make payments on credit without needing to carry cash or cards, all within the app they regularly use for UPI transactions.

Financial inclusion: This system particularly benefits individuals in lower income brackets or those without a robust credit history, as it provides them with opportunities to access credit based on alternative credit assessment models.

Emergency credit access: It can act as a financial buffer in case of emergencies, allowing users to make necessary payments immediately, even if they don’t have sufficient funds in their bank accounts at that moment.

Potential challenges

“However, integrating credit services with UPI also presents challenges such as the risk of increased fraud, the need for stringent security measures, and ensuring that users understand how to manage credit responsibly to avoid debt accumulation,” said Varma.

Several banks and financial institutions in India have started offering these credit lines through UPI, recognizing the potential to reach a broader customer base with minimal physical infrastructure. Varma said, “The adoption of credit on UPI is supported by the National Payments Corporation of India (NPCI), which manages the UPI platform, ensuring that the integration complies with regulatory standards and security requirements.”