Banks wary of UPI credit amid fintechs' big plans

Fintechs such as Freo, Jupiter and PayU are betting big on bringing a credit card-like payment experience for consumers on Unified Payments Interface (UPI) that has emerged as the fastest-growing payments platform in the country.

While RuPay credit cards on UPI was the starting point, fintechs are hopeful about a credit line on UPI picking up, company executives said.

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But with the Reserve Bank of India (RBI) asking banks to exercise caution regarding unsecured lending, many large lenders are going slow on unsecured products.

Also read | RBI’s brakes on lending largesse a timely move

“Multiple fintechs are having conversations with banks. We are in talks with a few, too,” said Jitendra Gupta, founder of neo banking startup Jupiter. “The product is still at an early stage of implementation, but currently banks are still figuring out the right tech system for backend,” he said.

Anuj Kacker, cofounder of Freo (previously Moneytap), also said the firm is working with a large bank to enable this product for its users.

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PayU is also evaluating how they can go about the credit line on UPI as a product for their users.

Vijay Agicha, chief of strategy, investments and M&A at PayU, said it is still exploring this, having conversations with banks, but is still not sure about the direction it intends to take.

Also read | PayU eyes B2B pay, credit play under new top brass

PayU runs LazyPay, a popular buy now-pay later application.

If a credit line gets activated on UPI, consumers can use UPI to pay while checking out and tap into the credit line to convert the payment into a pay later one.

Fintech UPI print GFXETtech

Two senior bankers ET spoke to said that while the product is bound to take off as there is massive demand for financing options at the point of transaction, there is always a big risk of the customer getting over leveraged.

“If you allow every entity to offer credit through UPI, then as a market, you are over leveraging, because the customer will go to multiple entities and they might try to avail those credit lines and then it becomes a chaotic situation after some time,” said Anil Kuril, chief technology officer of Union Bank of India. “An over leveraged customer will not have the capacity to repay, which will also be a big problem.”

Big opportunity

The next big wave of UPI adoption will come from check out finance, or buy now pay later, said fintech industry insiders. Consumers will have a credit line extended by their banks to a specific account. They can use UPI to pay from the credit line.

Currently, with more than 11 billion UPI payments happening every month and more than 300 million users using the payment method, it is a huge market that is waiting to be tapped. In comparison, there are only around 93 million credit cards in the country used by around 50 million Indians.

Also read | Digital lending at an inflection point

“Imagine the market opening up by that many times,” founder of a fintech startup said on the condition of anonymity. “Also, there are so many large players on UPI like Google Pay, PhonePe, Paytm, Cred, Groww, and others… They will all become modes of distribution of this credit.”

But unlike payments, credit always comes with risk of defaults and challenges around collection.

That is where banks are treading with caution.

“Unsecured credit distribution is not a major challenge given the demand, collection of such loans is the bigger challenge,” said a senior banker with a private sector lender. “As banks, we understand that fintechs can help us with distribution but we have to be sure about repayments too.”

Teething challenges

There are still discussions around the financials of the product. While many fintechs are working with banks to go live, some are also trying to find out if the financials will make sense.

“The line of credit can come only from the bank and once they enable the line, distribution can be done through any UPI app as the product construct is interoperable,” said Kacker of Freo. “But we need to find out how UPI apps can make money in the process,” he added.

However, after the initial hiccups get addressed and as banks open up their purse for unsecured credit again, the fintech industry is hopeful to leverage credit lines on UPI for their next wave of growth.

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Harry Byrne

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