
Non-banking financial companies (NBFCs) and fintechs have approached the Reserve Bank of India (RBI) with a request to enable them to offer credit on the Unified Payments Interface (UPI) platform. Currently, credit through UPI, including credit cards and pre-approved credit lines, is limited to banks.
Representations have been made to the RBI by industry players and associations, expressing hope that NBFCs will be allowed to provide credit on UPI in some form or manner. UPI is considered the most powerful transmission tool in the country, making it a valuable avenue for credit offerings.
Presently, UPI payments via credit cards are only permitted on the domestic RuPay network. Banks have also been granted permission to offer pre-approved credit lines to UPI customers, allowing them to make payments on credit.
While digital lenders, including fintechs and NBFCs, are eager to explore credit on UPI due to its significant impact, it is believed that the ecosystem will not experience a meaningful transformation until non-banks are allowed to participate. The RBI’s cautious approach may stem from a customer protection standpoint, as they want to ensure that “credit on UPI” is a viable product offering before extending it to more players. However, some NBFCs remain optimistic that these restrictions are not permanent, and the RBI will eventually be more open to including non-banks after considering various factors.
On the other hand, some industry participants argue that the current volumes of credit on UPI are minimal because ecosystem players find it challenging to efficiently utilize this distribution channel. They believe that volumes will not pick up significantly until private lenders, fintechs, and other card networks are included.
Private players are often the drivers of small credit, and allowing NBFCs on UPI would facilitate more partnerships and co-lending opportunities. While the government is effective in establishing regulations and management practices, the private sector drives business. Therefore, non-banks and fintechs should be permitted to participate, according to a senior industry official.