Indian banks have received new guidelines from the Reserve Bank of India (RBI) regarding credit lines on the Unified payment interface (UPI), potentially leading to their entry into the buy-now pay-later (BNPL) domain. According to an ET report, the RBI‘s recent instructions require banks to facilitate pre-approved lines of credit through UPI-based transactions. This development paves the way for recurring small value credit transactions around the world BNPL style at points of sale UPI users.
While fintechs and non-bank financial firms (NBFCs) have traditionally dominated the BNPL sector, this presents an opportunity for banks to enter the arena. Currently, most banks offer instant assimilated monthly installment (EMI) options on credit cards, with a select few extending this service to debit cards. However, by introducing predetermined credit limits, banks can immediately offer their customers EMIs, which can be used through any UPI app.
An executive who oversees payments at a private sector bank noted that many consumers opt for pre-approved personal loans that are deposited directly into their bank account, which comes with associated fees. However, by using the UPI, which is free of charge, you can save on these costs.
In a notice published on September 4, the RBI instructed the banks to prepare their own terms and conditions approved by the board. These conditions apply to the extension of credit lines via UPI Transactions with the consent of the customer. Banks will determine crucial factors such as the interest rate, credit term and credit limit.
This move opens up a new source of funding for UPI users, who currently rely on prepaid accounts, savings accounts, overdrafts, and RuPay credit cards for UPI transactions.
An experienced payments manager at a leading private sector bank expects a substantial increase in UPI transactions, possibly between 30 and 40%, due to the availability of credit on the UPI platform. This development not only increases transaction volumes, but also stimulates credit utilization.
Currently, about 350 million users use UPI for payments, compared to the 35 million credit card holders. With credit accessibility on UPI, the market opens ten times. Jitendra Gupta, the founder of Jupiter, a neo-banking startup, told ET that this gap will be bridged as underwriting models start integrating UPI data, which includes spending patterns, geographic location, categories of merchants and declines due to underfunding. to assess a borrower’s position. creditworthiness.
While UPI facilitates credit disbursement, banks should exercise caution when accepting these customers as traditional methods will still apply to direct debits, one of the bankers mentioned above noted. Regardless of the payout app used, the banks will bear the responsibility for the recovery, necessitating careful customer evaluation.
While fintechs and non-bank financial firms (NBFCs) have traditionally dominated the BNPL sector, this presents an opportunity for banks to enter the arena. Currently, most banks offer instant assimilated monthly installment (EMI) options on credit cards, with a select few extending this service to debit cards. However, by introducing predetermined credit limits, banks can immediately offer their customers EMIs, which can be used through any UPI app.
An executive who oversees payments at a private sector bank noted that many consumers opt for pre-approved personal loans that are deposited directly into their bank account, which comes with associated fees. However, by using the UPI, which is free of charge, you can save on these costs.
In a notice published on September 4, the RBI instructed the banks to prepare their own terms and conditions approved by the board. These conditions apply to the extension of credit lines via UPI Transactions with the consent of the customer. Banks will determine crucial factors such as the interest rate, credit term and credit limit.
This move opens up a new source of funding for UPI users, who currently rely on prepaid accounts, savings accounts, overdrafts, and RuPay credit cards for UPI transactions.
An experienced payments manager at a leading private sector bank expects a substantial increase in UPI transactions, possibly between 30 and 40%, due to the availability of credit on the UPI platform. This development not only increases transaction volumes, but also stimulates credit utilization.
Currently, about 350 million users use UPI for payments, compared to the 35 million credit card holders. With credit accessibility on UPI, the market opens ten times. Jitendra Gupta, the founder of Jupiter, a neo-banking startup, told ET that this gap will be bridged as underwriting models start integrating UPI data, which includes spending patterns, geographic location, categories of merchants and declines due to underfunding. to assess a borrower’s position. creditworthiness.
While UPI facilitates credit disbursement, banks should exercise caution when accepting these customers as traditional methods will still apply to direct debits, one of the bankers mentioned above noted. Regardless of the payout app used, the banks will bear the responsibility for the recovery, necessitating careful customer evaluation.
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