UPI's New Credit Feature - RBI to lead Credit Market

UPI Introduces New Credit Feature

Important Topic for SSB Lecturette

The UPI credit feature is a new feature that allows Indian consumers to make payments and transfers without the need for a physical credit card. The UPI feature on the NPCI-powered RuPay credit cards will be able to provide credit to customers based on their spending behavior and credit score. This feature is expected to give a boost to the credit card ecosystem in India. 

• UPI - Unified Payment Interface
• Developed by The National Payments Corporation of India (NPCI)
• Total transaction in 2022 - 74 billion transactions, worth Rs 125.94 trillion ( US $1541.51 billion)
• Total users: 10 crore (100 million) monthly active users in May 2021
• Transaction per month in 2022: 300 Million (30 crore) transactions every month

This will also bring down the cost of credit in India and help create a larger market within the nation, hence, leading to an increase in the consumer count. 

What is consumer count?

Consumer count refers to the number of people who are able to buy goods and services other than those that satisfy our basic needs. It is defined as the number of people in the middle class.

India is a nation with a huge population but very few people residing in India can spend more than Rs 1000 (Precisely US $12) daily on average. In India, according to the World Bank’s median poverty line, about 60% of India’s population live on less than $3.10 a day in 2018.

How will this disrupt the world credit card market?

• UPI’s new Credit facility will surely disrupt the credit cards which are issued presently by MasterCard, Visa, Discover and American Express which are all US or Western countries-based companies. [RuPay (Indian) also issues credit cards but is an Indian credit card provider which will further work with UPI for credit features.]
• However, UPI payments will not entirely kill the credit/debit card market as the card payment will still remain prevalent in the nation, and even banks will still keep providing Credit cards. Surely, UPI’s new feature will help to reduce the cost of credit.

What are charges to be paid in Credit Cards?

Some common fees and charges include annual fees, interest charges, cash payment fee, payment return charges, balance transfer processing fee, interest on balance transfer and statement reissue charges. We can expect that these fees and charges would be reduced due to UPI’s new credit feature.

Why UPI over Credit cards?

• UPI has been used by most of the residents due to convenience and security of paying directly through your mobile from your linked bank accounts. UPI’s credit feature will also give this benefit of using credit without a physical credit card directly through the user's smartphone. 
• UPI would be able to offer cheaper credits as there will be totally no physical cash flow, delivery charges of physical card & other updates and manual payments. 
• One of the biggest advantages is that UPI transactions are free of charge, while credit card transactions often come with fees and interest charges.