UPI Pay Later will allow customers to make purchases using direct credit from banks and repay later. Here's a close look at HDFC Bank and ICICI Bank’s UPI credit line offerings
With the Reserve Bank of India (RBI) approving the credit lines for Unified Payments Interface (UPI) on September 4, 2023, it’s important to understand how UPI Pay later works given that two leading banks have now announced this service. While ICICI Bank says on its website that the facility of credit lines (ICICI’s PayLater) is currently available, HDFC Bank says on its website that ‘UPI Now Pay Later service’ will be available soon.
RBI had made an announcement on September 4, 2023, allowing bank customers to access pre-approved credit lines to make transactions via QR codes, instead of using credit cards. With this move, customers can borrow money in increments to make purchases through QR codes instead of using credit cards. The borrower can repay the amount and borrow again, as long as the bank keeps the credit line open.
The RBI release said: “Under this facility, payments through a pre-sanctioned credit line issued by a Scheduled Commercial Bank to individuals, with prior consent of the individual customer, are enabled for transactions using the UPI System.”
The initial step to avail of the pay later option from HDFC Bank through UPI is to get a PayLater account with the bank. For account activation, the user has to pay a one-time non-refundable processing fee of Rs 199 along with the Goods and Services Tax (GST). This processing fee is deducted from the user’s PayLater account. Subsequently, the user’s debit card number is linked to the PayLater account.
Once the debit card is successfully linked, the user has to follow these steps:
Open your preferred UPI app (e.g. Gpay, PhonePe, Mobikwik, BHIM).
Select and add the new PayLater account.
Set your UPI PIN using your debit card credentials and ATM PIN.
Begin your shopping
While PayLater offers a credit line for transactions through UPI, you can only make payments to merchants through this overdraft account. Fund transfers to individuals are currently restricted, as indicated on the bank’s website.
Unlike conventional loans, in HDFC PayLater you have to pay interest only for the credit limit you utilize and for the number of days you use it and not for the entire amount. This interest is debited from your Pay-later account at the end of each month, which the borrower should deposit into their Pay-later account via online transfer.
Failure to do so within three days (grace period) will result in the bank recovering the same by deducting it from your primary account (savings/current).
In ICICI Bank’s Pay-later facility, account holders can avail up to 45 days of zero-interest digital credit. The amount could be used towards paying bills, online shopping and paying to any merchant UPI ID instantly.
The Pay-later dues are automatically debited from your ICICI Bank Savings Account. Customers will be charged one-time activation fees of Rs 500 plus GST. A service charge of Rs.75 + applicable taxes is levied on every Rs 3,000 of monthly spent from your ICICI Bank Pay-later account; this is applicable on monthly spend of Rs 3,000 and above.
Further, customers will face penal interest based on the daily total outstanding after the ‘Pay by Date’. Further, fixed late payment charges are also levied on subsequently generated bills until dues are cleared.
With the introduction of pre-sanctioned credit lines in the UPI System, customers now have a more flexible and convenient payment option, allowing them to make transactions through QR codes without relying on credit cards.
Previously, the UPI system only permitted transactions using the available balance in one’s bank account. But now, customers will have access to credit as well to help make them ticket purchases with ease. They can eliminate the need for credit cards to some extent.
To facilitate this transition, savings accounts, overdraft accounts, prepaid wallets, and credit cards can now be linked to the UPI, significantly expanding the UPI platform’s scope.
However, easy credit has its own pitfalls if you are not careful. This facility is much like buy now pay later (BNPL) and you should be careful when taking credit.