Why Credit on UPI is a Game Changer?

The way to get started is to quit talking and begin doing." -Walt Disney

Hi! I am Sankalpa!

Welcome to Product Sense - Soch and Sacchai

This newsletter is on facts, thoughts and stories around Product, Growth and Fintech. Hope you enjoy it.

Unified Payments Interface (UPI) is a real-time payment system developed by the National Payments Corporation of India (NPCI).

While Rupay on Credit Card was just the beginning, the scope is enormous.

About a year back, RBI allowed Rupay Cards on UPI. Here’s the payment flow

On the 6th of April, 2023, the Reserve Bank of India (RBI) Proposed to Link Credit Instruments to UPI for payments

With this proposal, private Banks can enable customers to link their existing credit lines with UPI

So, the question is why another circular on credit on UPI?

Can we link BuyNowPayLater accounts on UPI?

Would it add value to the UPI customers?

Which UPI app can win BIG?

First, let’s look at a few numbers.

Currently, PhonePe, Paytm and GooglePay are the primary UPI players

Hence, if the goal isn’t to get ahead of Credit Cards, then what?

Credit on UPI is crucial for global markets

Businesses & users are using them currently & it has got potential.

The international BNPL market is projected to grow from $22.86 billion in 2022 to $90.51 billion by 2029, exhibiting a CAGR of 21.7%.

57% of BNPL users feel it can replace credit cards and 70% feel it is secured

UPI's GOAL

UPI has a Platform strategy now. It wants to be the most preferred payment platform for users and businesses for any payment needs at a global level. There's money to be made in cross-border payments.

What can we expect Next?

NPCI regulations will follow the RBI proposal to define the guard rails for Credit Instruments on UPI. The UPI firms that can move fast and manage credit risks will be the ones to win the race.

So, Who's the Next UPI HERO?

FACTS YOU SHOULD KNOW

1. Businesses and Customers use their credit lines to make payments.
2. UPI PIN works faster than One-Time Passwords (OTP) (which gets delayed at times)
3. Credit Instruments unlike bank accounts cannot be used to pay anywhere.

• Cannot pay another person’s account
• Cannot use to repay other loans
• Cannot use to invest
• Cannot pay rent

You can Shop using Credit Instruments

Allowing customers to link their existing credit lines with UPI, businesses and consumers will be able to use their credit lines to make payments, potentially making every other authentication mode obsolete.

Analysing the UPI Players

Current Players include a variety of firms

1. Merchant UPI apps - They are selling their goods/services and also have their one UPI handles such as Amazon, Groww, ZeroDha
2. Super apps - They are a platform where you get various merchants selling their products or asking you to pay the bills. e.g.- PhonePe, PayTm, MobiKwik, GPay
3. Neo Banks - They offer accounts along with UPI such as Niyo, Jupiter etc
4. BNPL apps - They are offering BNPL products and also have UPI handles such as Slice

From a Product Launch perspective,

Amazon, PayTM and MobiKwik have BNPL products. PayTm Postpaid has 6 Million users. Amazon Pay Later declared about 3.7 Mn user sign-ups, Mobikwik Zip has 28 million sign-ups with 2.8Mn active users

They have a clear advantage as they can move fast with internal products. They will earn MDR on these credit line transactions as well.

From a Product Market Fit perspective,

Cred, Amazon, and Zomato will be better positioned as they have a huge user base and also know them well. Paytm to some extent with their travel and ride products.

However, the other firms will not stay still.

Every other firm will partner with a Bank or a BNPL powered by a Bank to get a partner who can drive PMF while they focus on building out the credit on UPI rails

The firms which win will depend on

1. Time to Market - While firms with current BNPL will look to launch fast as they'll need a nod from the banks
2. Enabling Credit on UPI for merchants - UPI apps will need to look at the user's spending pattern and enable this feature on the most frequented merchants
3. Rewards for Credit on UPI - Credit cards as a market is driven by offers and rewards and with Credit on UPI, the firms who do it well will create a user-merchant ecosystem to drive behaviour without burning a lot
4. Partnering with Banks - Each player will look forward to partnering with a bank that will build the platform first. If your current banking partners are already in it, you're ahead and PayTM is already a bank.
5. User Experience and Ease - The flows might be standardized however, the user experience in terms of discoverability and long-term user experience is purely defined by the product and each firm would like to up their game

My BETS

I would bet on PayTm and Amazon

1. PayTM is a payments bank already and they do not need any banking partner. Amazon has almost all the banks as their partners
2. They already have their BNPL products and also have active users
3. They have their customers spending data.

So, does size matter to be successful?

NO. Not at all!

I would hedge my bets with PhonePe and Cred Next

1. They also have customers spending data
2. Their user experience stands out among many apps
3. They have kept their product failure service TAT accurate and fast
4. They partnered very meticulously from the start & partner with multiple banks or BNPL players

Each firm needs to come up with a structure to add more credit line partners in future.

No clear winner right?

Yeah! That's what #ProductManagement is all about! You never know!

You can only take a best estimate given your current set of variables and if you continue to measure them, you find more variables to play with. Hence, always hedge your risks.

From the start, #UPI has been aiming to disrupt user behaviours.

Credit on UPI is a step in the direction to make UPI a platform for any payment needs be it credit, wallet or account.

Imagine yourself in a foreign country and using UPI to make payments. Cool right?

Just one concern: The OTP SMS vendors will have a run for their money when this goes viral. It is only a matter of time

Are you looking forward to using Credit lines like loans/BNPL?

If you like it, please subscribe and share it with your network

I am looking forward to hearing from you all in the comments section

#SanxSpeaks