Accessing loans is becoming simpler for the typical borrower, with various options available such as buy-now-pay-later programs, loans tailored for online shopping, and credit card payments structured in easy monthly installments. This abundance of avenues for immediate satisfaction presents a challenge for consumers as they struggle to resist the temptation of convenient credit to fulfill their lifestyle requirements.
The most recent addition to the instant loan options is the credit line associated with UPI, which was introduced in September last year. Developed by the National Payments Corporation of India (NPCI), this feature allows users to access immediate credit directly through UPI-enabled applications like BHIM, PayZapp, Paytm, G Pay, and similar platforms. It represents a pre-approved credit limit that customers can utilize while using the UPI payment app during their purchases.
These loans are predetermined by banks or financial institutions and are offered to users based on their creditworthiness. Users can utilize this credit line for UPI payments. One of the key benefits is its rapid and convenient loan disbursement, bypassing the traditional approval processes and extensive paperwork typically associated with loans.
How Credit on UPI Facility Works
To access the credit line linked to UPI, users must apply formally through their bank, which is connected to their UPI account. The bank evaluates the borrower’s financial status, which includes criteria like eligibility, income, credit history, and repayment track record. Depending on the bank’s guidelines, applicants may need to provide additional documents like income statements, identity verification, address proof, and other necessary paperwork. The process and prerequisites for obtaining a UPI credit line can vary among financial institutions. After reviewing the application and documents, the bank will notify the applicant of the approved credit limit and its associated terms.
Using Credit on UPI
In May 2024, a study focusing on Indian lower middle-class consumers. The study revealed that 42 percent of these consumers anticipate utilizing credit on UPI, a feature that allows users to access immediate credit through their UPI-enabled applications.
Additionally, as per research, approximately 53 percent of consumers believe that the main reason for embracing credit on UPI is its time-saving features, simplifying the loan procedure and minimizing administrative complexities. Meanwhile, 44 percent find it advantageous for shopping as it simplifies access to credit directly via their UPI-enabled applications.
Moreover, 23 percent of respondents believe that credit on UPI provides superior offers, contributing to its attractiveness. These factors contribute to the adoption of credit on UPI among consumers who prioritize financial flexibility and value. The Home Credit study surveyed a sample size of 2,500 individuals.
Challenges
Banks are hesitant to introduce credit on UPI primarily because credit cards yield a merchant discount rate (MDR) of approximately 2 percent, making them more lucrative for banks. Moreover, banks are currently offering RuPay credit cards, which can be connected to customers’ UPI accounts on payment applications, and this feature has gained significant popularity among users. The seamless integration and convenience of linking RuPay credit cards to UPI are widely accepted. Additionally, users can accumulate reward points through credit card transactions made using UPI.
The ‘credit on UPI’ service is a competitive offering with narrower profit margins for banks and limited user awareness. The Home Credit study indicated that although UPI has seen widespread usage, only 40 percent of users were familiar with the credit feature on UPI.
Fraud Alert
As our digital presence expands, the likelihood of data breaches and similar risks rises as well. Frauds related to ‘Credit on UPI’ can encompass unauthorized entry into UPI credit, phishing schemes where scammers deceive users to disclose their credentials, and the misappropriation of borrowed credit due to identity theft.
Conclusion
‘Credit on UPI’ marks a significant step towards enhancing financial accessibility and convenience, yet it also underscores the importance of addressing fraud risks and increasing user awareness. The evolving landscape of digital finance demands a balanced approach that prioritizes innovation, security, and financial literacy to ensure sustainable growth and consumer protection.
