Banks look to start credit line on UPI for small value loans
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After a prolonged delay, credit lines on the Unified Payments Interface (UPI) could finally see consumer adoption, with some of the high-street banks opening up to the product for disbursing small-value loans.'Banks are looking to go after new-to-bank customers, by offering them small credit lines via popular UPI apps , that is how the product will take the first steps,' said the founder of a fintech firm, requesting anonymity.New-to-bank customers are those who are not existing clients of a bank but could be acquired through the UPI channel. Large lenders like ICICI Bank and smaller banks like Karnataka Bank could look to scale up the product through UPI apps like PhonePe, Paytm, BharatPe and Navi.While there has always been potential in the product, it is yet to gain widespread adoption. RuPay credit cards have, however, found a wider adoption among consumers and banks already.A second founder said banks had reached out to the Reserve Bank of India with some doubts on product functioning and that those clarifications have come, resulting in some early tests being conducted.The founder explained that, given it is a new product and consumers will have an interest-free period after disbursal of the loan, banks needed clarity from the RBI on its structuring.'RBI has given clarifications to some banks on how they can run it, and this would be around the likely treatment of the outstanding, interest-free periods, and reporting to the credit bureaus,' the second founder said.RBI did not respond to email queries.The National Payments Corporation of India (NPCI), which runs the UPI platform had enabled pre-sanctioned credit lines on UPI in September 2023. However, most of the high-street banks did not go live with the feature due to technical challenges.That is finally changing now with banks opening up, industry insiders said.On July 10, NPCI issued a notification to banks asking them to ensure that all pre-sanctioned credit lines are aligned with the purpose for which the loan was granted.Loans that can be issued through this route are secured credit lines like gold loans, loans against fixed deposits, unsecured products like consumer loans, and personal loans, among others.Through the credit line product, a credit account can be linked to the UPI app in the backend. Banks will allow disbursal of small-value loans on the credit account, and consumers can utilise the limit by paying via UPI at merchant outlets or at ecommerce outlets.'Credit is the next big thing on UPI; this will help propel the payments platform to the next milestone in terms of transactions and adoption,' the first founder said.Industry estimates suggest that there are around 300 million users on UPI and around 150 to 200 million active or power users of the platform. Growth of the popular digital payment platform has been slowing, raising concern among sector regulators.Bankers believe that offering credit will open up new use cases on UPI, but there are risks which will need to be managed.Fintech startup Zeta, which powers new-generation technological capabilities in banks, offers backend infrastructure to power credit lines on UPI. In August 2024, Zeta had predicted that by 2030, $1 trillion worth of transaction spends will be processed on UPI.'Opening up credit on UPI will need to be done through a measured manner, else defaults will rise and collecting such small amounts will become a huge challenge,' said a senior banker with a private sector lender.
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