Unified Payments Interface (UPI) Credit Line: A Comprehensive Guide

Unified Payments Interface

Unified Payments Interface (UPI) now offers a credit line feature, thanks to the Reserve Bank of India (RBI). Users can make payments even with insufficient funds and repay later. This new addition allows users to link bank-issued pre-approved credit lines to UPI for seamless transactions. Before, only savings accounts, overdrafts, and credit cards could be linked. This credit is similar to “buy now, pay later” schemes. HDFC and ICICI have introduced their UPI credit services with varying fees and limits. The move bridges the gap between UPI and credit cards, offering more flexibility in payments and broadening banking services in India.

What’s New with UPI?
The RBI has recently allowed transfers from pre-approved credit lines via the UPI network. This initiative enables users to link their bank-issued credit lines to UPI and make seamless payments.

Changes for UPI Users
Previously, UPI users could only link their savings accounts, overdrafts, wallets, and credit cards. Now, they can also connect their pre-approved credit lines for UPI transactions.

Understanding Pre-approved Credit for UPI
A pre-approved credit is essentially an overdraft facility provided by banks. Once you consent and get approval, you can use this credit through UPI apps like Google Pay, Paytm, and MobiKwik. Some banks might charge interest on the used amount, while others might offer an interest-free period, similar to the “buy now, pay later” schemes.

HDFC and ICICI’s UPI Credit Offerings
Both HDFC and ICICI banks have launched their UPI credit services. HDFC charges a one-time fee of Rs 149 for activation, while ICICI provides a unique UPI ID for each PayLater account. Both banks offer a credit line of up to Rs 50,000, but the exact limit varies based on individual eligibility.

Charges Associated with UPI Credit
Banks have different charges for using the UPI credit line. For instance, HDFC charges interest on the spent amount, while ICICI levies a service charge after a certain limit.

Difference Between UPI Credit Line and Credit Card on UPI
While both offer credit, there’s a distinction. Credit cards require extensive documentation, excluding many from its benefits. UPI credit lines, however, require minimal verification, making it accessible to a broader audience, including small business owners.

The Bigger Picture
Currently, only RuPay credit cards are UPI-compatible. This new feature levels the playing field between UPI-linked accounts and credit cards. It also provides banks an opportunity to tap into the “buy now, pay later” market, traditionally dominated by fintechs and NBFCs.

In conclusion, the introduction of credit lines in UPI is a significant step towards enhancing the payment ecosystem in India. It not only provides users with more flexibility but also opens up new avenues for banks to expand their services.