RBI now allow "Credit Lines With UPI" without need of any RuPay/Mastercard/Visa Credit Card
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RBI now allow "Credit Lines With UPI" without need of any RuPay/Mastercard/Visa Credit Card:
The Reserve Bank of India's (RBI's) governor Shaktikanta Das on Thursday proposed to expand scope of United Payments Interface (UPI) by permitting operations of pre-sanctioned credit lines by banks through UPI. This initiative will encourage innovations and widen footprints of UPI, Das said while announcing the bi-monthly monetary policy.
"We have been making lot of announcements relating to UPI in past policies. UPI’s robustness has been leveraged to develop new products and features from time to time," he added.
What this essentially means?
RBI's announcement on UPI means that borrowers will now have access to digital credit lines from banks via UPI.According to Shivaji Thapliyal, Head of Research and Lead Analyst at YES Securities, banks will now be able to offer credit products and, essentially, mimic credit card offerings from a credit perspective, without actually issuing a physical credit card or requiring bulky and expensive physical acceptance infrastructure such as POS/swipe machines."While credit cards had earlier been allowed on UPI rails, it was done so only for the RuPay settlement system, which is not in vogue for private sector banks. Since most of the credit cards issued by private sector banks were on the Visa and Mastercard settlement systems, allowance of RuPay credit cards did not move the needle for private sector banks. However, with pre-sanctioned credit lines now proposed to be allowed, private sector banks can now simply offer credit card-like products to anyone who has a UPI relationship with the bank and at any merchant that has a lightweight and low-cost QR code or other acceptance infrastructure and, also, for online merchants," Thapliyal said.
In simple words, pre-sanctioned credit lines implies pre-approved credit, which is essentially credit that banks would have approved for customers based on data analytics carried out on internal deposit customers. However, this may also include non-customers whose credit bureau and other information may have been analysed by the banks.Prima facie, private sector banks would target both internal liability customers and new-to-bank customers. New-to-bank customers could be the ones which are using a given bank’s app as the interface to carry out UPI transactions from another bank’s deposit account.
How will customers benefit?
The move will reduce number of cards customers have to carry and make transactions via UPI.Rajsri Rengan, India Head of Development, Banking and Payments at FIS said that this will help in reduction of the time and effort required for customers to secure loans."This will ultimately drive economic growth and development," Rangan said.According to Harish Prasad, Head of Banking, India at FIS, access to pre-sanctioned credit lines via UPI will re-ignite the digital lending and BNPL space too.Earlier, restrictions were imposed on disbursements into prepaid wallets and cards from credit-lines and loans. Many BNPL players had to resort to tenuous work-arounds to continue to deliver a seamless purchase experience.
"With the UPI channel opened up for access to credit lines, the point-of-purchase credit experience becomes seamless and opens up avenues to use credit across a much larger merchant base. This has the potential to drive transformational growth for the BNPL lending sector," Prasad said.
UPI numbers
According to National Payments Corporation of India (NPCI), transactions on the UPI platform advanced by 60 percent year-on-year in March to a record 8.7 billion. In terms of value, payments on the platform rose 46 pe cent YoY to Rs 14.05 trillion.
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BNPL on PPI/Prepaid Cards or BNPL on PPI link UPI network is still banned.
This is Credit lines on "Credit on UPI" network.
Similarly, you already get credit lines on your visa/master/diners club/amex/RuPay credit card network.
A credit card is also form of credit line, where the borrower (the cardholder) is given a predetermined credit limit, and they can make purchases up to that limit. The card holder is required to make regular payments, usually monthly, to pay off any balances accrued on the card.
However, credit lines can also come in other forms, such as personal lines of credit or business lines of credit, where the borrower can access funds as needed for various purposes, such as paying for unexpected expenses or funding a new project.
Overall, a credit card is a type of credit line, but credit lines can also take other forms beyond credit cards.
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Credit line Startups that got bankrupt after RBI banned credit-lines for not having banking/NBFC license:
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First close down the Credit Lines with UPI and prepaid cards citing policies and all, then allow credit lines on UPI citing policies.
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