RBI’s move to include pre-sanctioned credit lines in UPI will allow consumers to make digital payments in credit without using credit cards
The Reserve Bank of India (RBI) on September 4, 2023 announced that the Unified Payments Interface (UPI) system will now include pre-sanctioned credit lines issued by banks, thus ushering in a new era of convenience and flexibility in digital payments for consumers.
Earlier, the UPI system allowed transactions only with the deposited amount in one’s bank account, thus limiting its scope. At present, savings accounts, overdraft accounts, prepaid wallets and credit cards can be linked to UPI.
But now the scope of UPI is being expanded by the inclusion of credit lines as a funding account, RBI said in a release.
“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. Banks may, as per their board approved policy, stipulate terms and conditions of use of such credit lines. The terms may include, among other items, credit limit, period of credit, rate of interest, etc,” RBI said in a press release.
What it essentially means is that customers can now access pre-approved credit lines to make transactions via QR codes, instead of using their credit cards.
Customers can borrow money in increments to make purchases through QR codes, rather than use credit cards. The borrower can repay the amount and borrow again, as long as bank keeps the credit line open.
This move is expected to reshape the landscape of digital payments and credit lending in India, in a way also enhancing the accessibility to credit.
At present, the UPI system handles a whopping 75 per cent of the retail digital payment volume in India. This growth in digital retail payments via UPI has outpaced major developed economies, such as the US, the UK and elsewhere in Europe, thus resulting in a reduction even in the circulation of low-denomination banknotes.
Further, the recent integration of RuPay credit cards with UPI has expanded the platform’s reach and utility. UPI, which is designed for immediate money transfers through mobile devices, recorded over 10 billion transactions in August, 2023 surpassing the 9.96 billion transactions in July and 9.33 billion in June of this year.