Reserve Bank of India’s (RBI) latest move to enable Unified Payments Interface (UPI) payments from pre-sanctioned credit lines will pave the way for more innovation in credit products, say experts. These include various types of secured and unsecured products for the under-banked segment.
“Basically, we will be able to link secured and unsecured products to UPI and we can use it as a point of sale terminal. Also, buy-now, pay-later-like model with a pre-approved credit line can be made available to customers. It is a good thing for innovation,” Mihir Gandhi, partner – payments transformation, PwC India, said.
In its monetary policy statement on Thursday, the RBI proposed that the UPI network be enabled to facilitate payments financed by credit from banks. The central bank said it will shortly issue separate directions on this.
The latest move adds to the array of regulatory measures aimed at enhancing the adoption of UPI. Recently, the central bank permitted RuPay credit cards to be linked with UPI.
“I think banks is the first step, but they should also make it open to NBFCs going forward. Secondly, there is an opportunity for non-RuPay credit card networks to work with banks and offer credit lines that can be linked to UPI,” Gandhi said.
The emergence of UPI as among the most-preferred payment platforms has made it conducive for credit disbursal, say experts.
Transactions on the UPI platform rose 60% year-on-year to a record 8.7 billion in March, the latest data from the National Payments Corporation of India showed. In terms of value, payments on the platform rose 46% y-o-y to Rs 14.05 trillion.
A recent report by financial wellness platform CASHe showed that UPI was the second-most preferred method to repay loans after the National Automated Clearing House (NACH).
Around 84% of CASHe’s customers prefer to take a credit line instead of personal loans and buy-now, pay-later. Satchetised loans of less than Rs 10,000 are preferred by 49% of its customers.
With its latest announcement, the RBI has lowered the cost of credit for borrowers across the board. It has also paved the way for financial entities to develop newer business models to target the under-banked segment.
Specifically, the credit card market in India will get a boost as it may pave the way for non-bank entities to offer credit cards. Effective July 2022, the RBI allowed non-bank lenders to issue credit cards subject to certain criteria.
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“If you compare the Indian credit card market to a developed market, the former only has a couple of non-bank issuers. In the West, there is a plethora of credit card products that are from non-bank issuers and they cater to various sub segments of the population,” Rajat Deshpande, chief executive officer and co-founder, FinBox, said.
Deshpande thinks the RBI is slowly lowering the bar of entry into the cards space. As it happens, more financial services institutions will start experimenting with cards as products, and this will increase penetration in tier-II and tier-III cities.