"UPI Now Pay Later" : A Game Changer in 'Digital Lending'

On September 4, 2023, the Reserve Bank of India (RBI) issued a notification that heralded a significant evolution in the realm of digital payments.The notification introduced a groundbreaking feature called "UPI Now Pay Later," allowing individuals to leverage pre-sanctioned credit lines offered by scheduled commercial banks for transactions via the Unified Payments Interface (UPI) platform.

This article offers a comprehensive exploration of this innovation, delving into how it works, its advantages, the participating banks, interest rates, and its potential to revolutionize the digital payments landscape.Understanding UPI Now Pay Later:

Traditionally, UPI users could link their savings accounts, overdraft accounts, prepaid wallets, and credit cards to the UPI system. However, the advent of "Now Pay Later" introduces a novel concept – making UPI payments even when there are insufficient funds in the linked bank account. This feature relies on a pre-approved credit line provided by banks, essentially functioning as an overdraft facility.

The Process:

To utilize this feature, individuals must first grant their consent to the bank for establishing a credit line with a predefined spending limit. Once approved, they can make transactions using their UPI applications like Google Pay, Paytm, MobiKwik, or various mobile banking UPI applications in accordance with the policies of their respective banks.

Interest and Repayment:

Interest rates and repayment terms vary among banks. Some banks charge interest on the amount spent from the credit line, while others offer a credit-free period, meaning no interest accrues if the outstanding amount is settled within a specified timeframe. This "buy now and pay later" concept aligns with the emerging trend in the digital payment sector.

Prominent Banks Offering UPI Now Pay Later:

As of now, HDFC Bank and ICICI Bank are among the pioneers in providing UPI Now Pay Later services. However, it is anticipated that more banks will soon adopt this innovative payment method, expanding its reach to a wider audience.

Interest Rates and Charges:

HDFC Bank provides a credit limit of up to Rs 50,000 with a maximum credit period of six months. Interest is calculated based on the amount utilized and the number of days it is used. If the interest remains unpaid within the grace period, it is deducted from the user's primary account.

On the other hand, ICICI Bank offers instant digital credit for up to 45 days with no interest but applies a service charge and taxes for each transaction exceeding Rs 3,000 from the PayLater account.

Key Differences from Credit Cards:

While UPI credit lines share similarities with credit cards on UPI, a key distinction lies in accessibility. Obtaining a credit card often involves extensive documentation, limiting access for those without formal income records. Pre-approved credit lines are more accessible, requiring basic account verification, making them an attractive option for small borrowers and business owners in need of working capital. This accessibility potentially disrupts the traditional credit card user base.

Equating UPI with Credit Cards:

Traditionally, only RuPay credit cards were accepted on UPI platforms. The introduction of UPI Now Pay Later equates funding accounts linked to UPI with credit cards, offering users more financial flexibility and convenience.

Bank's Entrance into "Buy Now, Pay Later":

The "Buy Now, Pay Later" sector has been predominantly occupied by fintechs and non-banking financial companies (NBFCs). However, the introduction of UPI Now Pay Later presents an exciting opportunity for banks to enter this domain, providing users with enhanced financial flexibility and convenience.

In conclusion, UPI Now Pay Later represents a significant leap in the world of digital payments. By bridging the gap between traditional credit lines and UPI transactions, it offers users greater convenience, accessibility, and financial freedom. As more banks embrace this concept, we can expect it to reshape the landscape of digital payments in India and beyond.