RBI has allowed banks to offer credit lines to customers through UPI. Several banks, including Axis, HDFC, ICICI, Indian Bank and PNB, are live on this product. The credit line to customer is a product where the customer gets a fixed credit line and pays interest to the bank only to the extent they use their credit limit.
The new credit feature on UPI allows customers to make purchases without immediately seeing any funds outgo from their accounts.The payments take place at the end of a cycle and can only be made to shops, with the shopkeeper bearing the cost of credit in terms of fees. There is no charge for the customer. While this is a new product, the payment infrastructure that will be used will be the existing UPI payment and acceptance setup.
In the eight years since its launch, UPI has replaced debit cards as the primary method for account-to-merchant payments. Credit on UPI offers similar capabilities as credit cards. One of the main factors driving adoption is the comparison of fees that merchants would have to pay in relation to credit cards.
According to a report by AT Kearny and Amazon Pay, 53% of consumers prefer UPI for online purchases, while digital wallets and cards (credit, debit, and prepaid) are preferred by 30%. In offline purchases, cash is still predominant, with 25% of consumers preferring UPI and 20% preferring digital wallets and cards.
NPCI has loaded multiple payments on to the UPI infrastructure over the years. It had earlier launched UPI Lite, where a certain sum is blocked from a bank account into a virtual wallet and used for payments without a second factor authentication or proper network. Subsequently, it has allowed Rupay cardholders to dematerialise their card and make credit card payments by scanning UPI QR codes. RBI’s Central Bank Digital Currency (eRupee) has been made interoperable with UPI, and those holding eRupee in their wallets can scan UPI QR codes to make payments.
