upi: Now, banks can offer their customers a BNPL experience through UPI


Imagine, if you will, that a customer has been offered a pre-sanctioned credit line by his or her bank. When the customer tries to make a purchase and wants to dip into this credit line, he or she can do so through his or her UPI app. And that’s what India’s central bank is looking to enable, thereby giving banking customers a Buy Now, Pay Later (BNPL) experience.

To this end, the Reserve Bank of India (RBI) has instructed banks to open up pre-sanctioned credit lines through Unified Payments Interface-based transactions. The move could stimulate the fledgling BNPL market in India.

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In a notification issued on September 4, the RBI asked banks to set up their own board-approved terms and conditions under which, with due customer consent, they can extend such credit lines via UPI. Banks will decide the rate of interest, duration of credit and the credit line amount.

The move will provide a new funding source for UPI users. Currently they can use prepaid, savings, overdraft accounts and credit cards for UPI transactions.

“Banks can now offer a BNPL type of payment experience for recurring credit transactions to their customers,” said a senior banker, who leads payments at a private sector bank.

He added that eventually, the credit line can be consumed through third-party payment apps on UPI, such as Google Pay and PhonePe, once the bank with the underlying account enables the service for its customers.

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The move assumes significance at a time when the National Payments Corporation of India is pushing for more credit-based transactions on UPI to enable the payment rail to compete with credit cards. Hitherto, UPI was primarily a debit payment mode for consumers. Recently, the regulator enabled linking of RuPay credit cards on UPI, as well.Another senior banker pointed out that the UPI route will ease disbursal of credit, but banks will have to be very careful around underwriting customers, given that collections will have to be done through the traditional method.

“No matter through which app disbursal happens, recovery will have to be done by the bank, so the bank will have to underwrite customers carefully,” he added.

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