Consumers who have a pre-approved credit line from their bank will soon be able to use it via Unified Payments Interface (UPI) accounts to make payments. This decision came from the Reserve Bank of India (RBI) recently to boost innovation in credit products and the adoption of digital payments. 

Pre-sanctioned credit line: It is similar to a loan wherein a bank offers consumers credit of a pre-amount amount based on details related to their credit score. However, consumers do not need a credit or debit card to access this credit and are only charged for the amount used.

 Let’s break it down to understand what this move means for banks, businesses, and end-consumers. 

How does offering credit lines via UPI to consumers affect banks? 

As mentioned earlier, banks don’t need to issue credit or debit cards to provide customers with this type of credit line. One, this saves them a significant amount in disbursal and distribution costs. This move also allows banks to develop new-age credit products catering to consumers’ evolving needs. Third, banks can extend this offering to non-customers (potential customers) using their interface to make UPI transactions. 

How does offering credit lines via UPI to consumers affect businesses? 

Suppose you are a business that already accepts UPI payments from customers. Basically, having the option to pay for purchases using credit lines via UPI makes buying extremely convenient and more affordable for your customers. This can mean higher revenue for your business by increasing sales, ticket sizes, and customer delight. 

How does offering credit lines via UPI to consumers affect consumers? 

Consumers, especially those who find it difficult to get traditional credit, will significantly benefit from this move. This is because credit lines via UPI use modern, alternative methods to determine one ‘s creditworthiness. They also don’t need to hold a credit or debit card to avail themselves of this credit product. It also rids them of the need to carry multiple credit and debit cards. Lastly, they get the convenience of UPI and the advantage of credit to fulfil all kinds of purchasing needs. 

Let’s sum it up with an example 

ABC Bank is offering pre-approved credit lines of up to Rs 50,000 to their existing and potential customers. They look at data like transaction and credit history linked to bank and UPI accounts to create a list of customers eligible for this offering. Now, merchant XYZ already accepts UPI payments for purchases on their online store. This merchant starts allowing their customers, who are also customers of ABC Bank, to purchase products using credit lines via UPI. The customers are very happy as they now have better purchasing capacity and the convenience of digital payments to buy their favorite products. Even the bank and merchant are happy as this leads to more business.