Buy Now Pay Later: Soon, instant EMIs on UPI via banks

Indian banks have received new directives from the Reserve Bank of India (RBI) regarding credit lines on the

Unified Payments Interface

(UPI), potentially leading to their entry into the buy-now pay-later (BNPL) domain. According to an ET report, the


‘s recent instructions mandate banks to facilitate pre-approved credit lines through UPI-based transactions. This development paves the way for recurring, small-value credit transactions in the


style at merchant outlets for


While fintechs and non-banking financial companies (NBFCs) have traditionally dominated the BNPL sector, this presents an opportunity for banks to enter the arena. Currently, most banks offer instant equated monthly installment (EMI) options on credit cards, with a select few extending this service to debit cards. However, by introducing pre-sanctioned credit limits, banks can promptly offer EMIs to their customers, which can be utilized via any UPI app.
An executive who leads payments at a private sector bank noted that many consumers opt for pre-approved personal loans directly into their bank accounts, incurring associated costs. However, leveraging the UPI, which is cost-free, can help save on these expenses.
In a notification released on September 4, the RBI instructed banks to establish their own board-approved terms and conditions. These terms will govern the extension of credit lines via

UPI transactions

with the customer’s consent. Banks will determine crucial factors like the interest rate, credit duration, and credit limit.

This move opens up a fresh funding source for UPI users, who currently rely on prepaid accounts, savings accounts, overdraft accounts, and RuPay credit cards for UPI transactions.
An experienced payments executive at a prominent private sector bank anticipates a substantial increase in UPI transactions, possibly in the range of 30-40%, due to the availability of credit on the UPI platform. This development not only bolsters transaction volumes but also encourages credit utilization.

Presently, approximately 350 million users utilize UPI for payments, compared to the 35 million credit card holders. With credit accessibility on UPI, the market opens up ten times. Jitendra Gupta, the founder of Jupiter, a neo-banking startup told ET that this gap will be bridged as underwriting models begin incorporating UPI data, including spending patterns, geographic location, merchant categories, and declines due to insufficient funds, to assess a borrower’s creditworthiness.
While UPI facilitates credit disbursal, banks must exercise caution in underwriting these customers, as traditional methods will still apply to collections, noted one of the bankers quoted above. Regardless of the disbursal app used, banks will bear the responsibility for recovery, necessitating careful customer evaluation.

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