The emergence of Credit Line on UPI represents a significant leap forward in the financial landscape. This pioneering financial offering promises to reshape the lending landscape, providing individuals and businesses with seamless access to pre-sanctioned credit lines from banks, coupled with the convenience of UPI. Since its introduction in September last year, fintechs have been quick to capitalise on this breakthrough. As this transformative wave continues to gain momentum, we anticipate following disruptions taking shape, bringing in a new era of financial accessibility and innovation.

UPI In-store EMI: Redefining Consumption Finance

In the realm of financial innovation with Credit Line on UPI, UPI In-store EMI will stand out as a ground breaking B2B2C strategy. By first targeting offline merchants, this strategy aims to acquire consumers through subvention partnerships and tech integrations with banks and brands. The central goal is to enhance affordability, rewards, and approval rates for end consumers, serving as the linchpin connecting these four crucial players.

The consumer experience unfolds seamlessly through a streamlined process: a cashier-sent SMS link containing cart details and amount directs to one-time onboarding on the application where consumer can explore a list of credit options for payment with details on reward, tenor, EMI amount, no-cost or not, and interest rate. Additionally, consumers are presented with enticing options for new credit lines or cards, complete with approval likelihood and purchase rewards, creating an all-encompassing in-store experience. This innovative approach, akin to traditional in-store lender desks, democratises access across various lenders.

The rewards for the above purchase comes from subvention budgets held by banks and brands, as well as budgets held by banks for new user activation, inactive user resurrection, and driving line usage and spends. There is no dearth of budgets for these purposes, for example, the credit card issuer’s annual reward budget for driving card usage is around Rs. 50 – 100 Crore for every 1 million cards held. This approach ushers in a win-win situation for consumers, merchants, brands, and challenger banks. The belief is that the entire credit lifecycle, from issuance to activation to usage to resurrection, will increasingly converge at the point of consumption – in-store.

However, building “UPI In-store EMI” presents challenges such as competition from merchant acquirers, the cold-start problem in securing these four actors, concerns about collusion and fraud costs, and determining the right go-to-market (GTM) for merchants segments and categories, which need to be addressed for widespread adoption.

UPI Step-up Line: Expanding Access to Credit

“UPI Step-up line” introduces small credit lines (<Rs 10K) for new-to-credit and subprime segments, with the goal of stepping them up over time given good repayment behaviour. 

This universal multi-merchant khata, offering an interest-free period, not only provides consumers with payment convenience but also serves as a short-term liquidity solution and a unique opportunity to build or repair credit scores.

For partner lenders, it acts as a low-risk funnel to discover creditworthy customers with end-use visibility on their spending partners.

The concept of the “low and grow” underwriting approach and step-up lines is not new, but the universal acceptance on the UPI network makes this opportunity more feasible than everbefore. While awaiting regulatory clarity on “credit line on UPI”, the potential of this opportunity is massive.

UPI Secured Line / Card: Expanding Access to Credit

Secured Credit Line /Cards is another emerging opportunity addressing the under penetration of the credit card market in India. With a mere 25M monthly active users, the industry’s focus on multi-carding salaried users has resulted in 40M credit card applications being declined annually, despite many being creditworthy.

Secured cards, backed by financial security such as FDs, MF units, stocks, bonds, or life policies, mitigate credit risk concerns for banks. The advent of APIs and digital line-marking infrastructure for these financial instruments has made secured credit cards more viable.

Historically, prohibitive customer acquisition costs (CACs) made it economically unviable for banks to offer small credit lines, especially to new-to-bank users. With Credit cards on UPI addressing acceptance issues and providing a feasible avenue for smaller credit lines, the industry can now tap into the Bharat segment and create a seamless payment experience.

Despite challenges, such as users liquidating underlying financial securities during times of need, leading to card closure, these issues are seen as solvable. The potential of secured credit cards, when issued and graduated to unsecured lines with a focused approach, presents an exciting opportunity for the industry.

In conclusion, these transformative financial solutions promise to redefine the landscape of credit access, fostering inclusivity and bringing about positive disruptions across various sectors. With the evolution of regulatory frameworks, the industry stands poised to embark on a new era of financial accessibility and innovation, catering to the diverse needs of consumers and businesses alike.

Originally published in ETBFSI: