The world of digital payments in India is about to reach a new turning point. UPI isn’t just about sending money or paying bills; banks are preparing to go beyond this and introduce a new feature that could make everyday spending even easier. Major banks are set to create a new buzz in the market with this move.
After a long wait, major banks like HDFC Bank, Axis Bank, and Kotak Mahindra Bank are now preparing to rapidly expand credit payments through UPI. Until now, banks have been distributing RuPay credit cards to promote credit usage on UPI, but now they have also become active in offering direct “credit lines on UPI.” This will allow UPI users to make small and large payments on credit without a card.
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New developments in credit line products
The National Payments Corporation of India (NPCI) launched this feature in 2023, but for two years, no major bank adopted it. Only Karnataka Bank and Suryoday Small Finance Bank, which partnered with Navi and Paytm, launched this credit line.
Now, for the first time, major private banks like HDFC and Axis are also preparing to launch this product. An ET report states that these banks are collaborating with fintech startups like Navi, Super.Money, and SalarySe to facilitate easy customer onboarding and ensure first-level verification through the app.
Banks’ hesitation and now the green light
Banks’ biggest concerns were how interest would be charged on the credit line, whether there would be an interest-free period, and what the rules would be. This ambiguity held major banks back. However, it is now being reported that all the necessary clarity has been provided by both NPCI and the Reserve Bank. Therefore, banks are now moving forward with launching this facility.
How many people have taken this credit line?
Industry estimates suggest that approximately 300,000 to 400,000 customers have already availed of such UPI-based credit lines. While the number of transactions is currently low compared to typical UPI payments, the pace is rapidly increasing as this feature provides people with instant access to credit for small expenses.
Big opportunity for banks to add new customers
Major banks are seeing this feature as a way to bring new customers into the banking system through such small loans. Fintech companies say that customers who repay small credits on time become strong and reliable customers for the bank in the long run. With the credit option on UPI, banks are aiming to reach the millions of users who make small everyday expenses through UPI and could become a major provider of banking services in the future.
There is also a fear of a credit bubble.
Some banks are wary of offering such a large number of small loans. They say that if customers fail to repay their payments on time, recovery will be extremely difficult because these loans are for very small amounts. Therefore, each bank is weighing the risks before fully venturing into this product.
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