Your UPI account will soon work like a credit card
The Reserve Bank of India's (RBI) bi-monthly Monetary Policy Committee (MPC) meeting was packed with surprises this time. The MPC not only kept the repo change unchanged, but it also had a surprise for UPI users. The central bank announced the operation of pre-sanctioned credit lines at banks via UPI. In other words, your UPI account will soon work as a credit card.
Why does this story matter?
The RBI and the National Payments Corporation of India (NPCI) have been taking measures to expand the scope of UPI and increase its popularity. Last year, the central bank allowed linking credit cards with the UPI network to further its influence. The new measure, however, trumps that as it has the potential to change the way customers access credit.
Users will be able to access credit lines from banks
What does RBI's announcement mean for a UPI user? It simply means you will be able to buy something using UPI, but you wouldn't have to pay right away. Yes, just like a credit card. Users will be able to access digital credit lines from banks. This facility is currently offered by 'buy now, pay later' platforms.
The decision will further encourage innovation: RBI Governor
RBI Governor Shaktikanta Das said the decision of allowing access to credit through UPI "will further encourage innovation." "It is now proposed to expand the scope of UPI by enabling transfers to/from pre-sanctioned credit lines at banks, in addition to deposit accounts. In other words, the UPI network will facilitate payments financed by credit from banks," the central bank said.
RBI's decision is a big boost for private banks
RBI's decision is a boost for private sector banks, which could not take advantage of the central bank's decision to link credit cards with UPI, as it was only for RuPay credit cards. Most private banks use Mastercard and Visa settlement systems. With pre-sanctioned credit lines, private banks will be able to offer credit products to customers with a UPI relationship with the bank.
What does pre-sanctioned credit mean?
Now, let's talk about pre-sanctioned credit lines. It means a pre-approved credit limit. Banks approve credit limits to their customers after carrying out data analytics. They use mathematical formulae to determine the customer's credit quality. Based on the analysis, they would approve a certain credit limit. Banks will be able to do this for both customers and non-customers.
