Credit on UPI : A made-in-India, paylater

Rupay cards (to start with) might unlock the thrill of buying on credit, and while UPI is breaking all records - together this becomes the mother of all convenience.

After the latest RBI announcement, UPI will not only be a payment instrument but can also become a lending product. For starters, RBI is launching this feature for Rupay users only, which I believe will also be enabled for VISA and Mastercard card users.?

RBI allowing NBFCs to issue credit cards could mean UPI linking is the next step.

The next 200M

This change will push the credit card user boundaries and reach the next 150-200 million people who use UPI but don't get credit. For example, Lalit from Raipur uses UPI to buy daily groceries and wants to pay back after 30 days. But doesn't have too many options. This ruling makes it easy for Lalit to manage his expenses conveniently.?

But the trick is - getting a credit card is based on the customer's credit history and other factors. Underwriting the next 150-200M customers was and will not be easy. This new ruling doesn't make this underwriting process easier. But, I hope for the greater good, the experience of a 30-day interest-free credit will become a reality via UPI for new-to-credit (NTC) customers, thereby truly broad-basing credit for the masses.?

How does it impact the broader market??

New entrants and PPI card players will be required to launch standard / regular credit cards with a bank or approved NBFCs to launch this facility if they want to use this UPI on the credit card feature.?

They will need to develop the infra to underwrite Rs 500/5000 and collect it back digitally across the length and breadth of India. Incidentally, PPI players could have offered UPI if they wanted to, but most haven't.?

And UPI players can ask their existing credit card customers to link their cards to their existing UPI handle.

Going from a payment-only to a disciplined-credit operation takes a change in DNA, and a major overhaul as collecting money, cost of capital and economics become critical variables to solve.?

But there are a few questions that must be addressed.

Merchants like to accept UPI payments because there is no fee. But RuPay credit cards still carry an MDR and account for just 2% of the credit card market in India.?

There's a chance people will use this opportunity for credit rotation and additional debt reinvestment in investing and trading.?

Unlike UPI transactions that require a four-digit PIN, a credit card requires a pin for offline POS and OTP for online transactions. Plus, transitioning from UPI Debit to UPI credit will not be easy.?

People might overspend and fall into a debt trap, VISA and Mastercard users will cry foul, and lending capital needs to be figured out as NBFCs can't issue credit cards without prior RBI approval.

But as they say, "things don't grow when they are easy."

It'd be interesting to witness the next game-changer in India.?

What do you think??