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The governor of the Reserve Bank of India (RBI) has said that UPI, the country’s popular instant payments system, could soon be repurposed to deliver credit directly from banks to consumers.

During a last week, RBI governor Shaktikanta Das said that UPI could revolutionise consumer credit provision in India, by removing friction between banks and borrowers.

“The Unified Payments Interface (UPI) has transformed retail payments in India, and UPI’s robustness has been leveraged to develop new products and features,” he said.

“It is now proposed to expand the scope of UPI by permitting the operation of pre-sanctioned credit lines at banks through the UPI. This initiative will further encourage innovation.”

Such a move would allow banks to offer credit to customers that can be drawn on at the point of sale (POS), in much the same way that buy now, pay later (BNPL) services operate.

After passing internal checks with the bank and signing pre-arranged credit agreements, customers would then have the freedom to pay for goods and services via UPI on credit, if they choose to.

Dr Ritesh Jain, founder of credit card wallet app Infynit, said the move could benefit millions of Indians who do not have access to traditional banking channels and are reliant on informal sources of credit.

“It's a significant step towards financial inclusion in India, a priority area for the government in recent years,” he .

“It remains to be seen how this new offering will impact the lending ecosystem in India, but still, it has the potential to significantly increase access to credit for underserved segments of the population.”

Jain added that “several” firms are already working with banks on UPI-based lending platforms.

UPI’s first foray into consumer credit

During his speech, Das pointed out that UPI has already been upgraded to allow RuPay credit cards to be to UPI IDs.

Launched in October 2022, the linkage has enabled merchants that cannot accept regular credit card payments, as a result of a lack of point of sale (POS) infrastructure, to accept RuPay credit transactions via UPI.

At first, the UPI linkage was available only on RuPay credit cards issued by three state-owned banks — Indian Bank, Punjab National Bank and Union Bank of India — but in February this year, HDFC Bank became the to offer the same.

However, the apps that consumers can use to link their RuPay credit card to their UPI ID remain limited. At present, BHIM, MobiKwik and Paytm are the that allow customers to create the linkage.

However, the National Payments Corporation of India (NPCI), which operates the RuPay network, is currently working with other apps to enable the linkage feature.

Last week, the NPCI that it is working with payment aggregators including Google Pay, PayU, Razorpay, BharatPe, Pine Labs and Cashfree Payments to enable this feature.

“Approximately 250m Indians use UPI for their day-to-day transactions, and close to 50m users have one or more credit cards,” said the NPCI.

“The move is set to combine the convenience of both by offering customers instant payment experience of UPI with the benefits of short-term credit and rewards offered by credit cards.”

It is worth pointing out, however, that RuPay credit cards currently make up only a fraction of India’s total credit card market.

As of January 2022, according to , RuPay credit cards comprised less than 3 percent of India’s total credit cards issued.