India likely to have UPI-type architecture for instant credit disbursement

"The payment architecture OCEN can truly democratise credit flow, making the process hassle-free," said Nandan Nilekani

India may soon see the emergence of a 'plug and play' protocol on the lines of the Unified Payment Interface (UPI) to extend instant credit to small businesses and vendors. Work on the protocol is underway with multiple stakeholders involved, while
industry thinktank iSpirt is leading the initiative.

Speaking at the Global Fintech Fest 2020, Nandan Nilekani, former chairman of UIDAI, and non-executive chairman at Infosys, said, just like UPI, which is a common language for payments, the proposed protocol Open Credit Enablement Network (OCEN) is also a common language between the lenders and borrowers. “It is an architecture that allows you to connect lenders to marketplaces who in turn lend to players in their industry. If this is done, we can truly democratise credit and make sure it reaches small companies and street vendors."

Nilekani also said that any business can help as a Loan Service Provider (LSP) by embedding customer details through the protocol and facilitate small loans for them in near real-time. The infrastructure is also aimed at reducing the cost of lending and solving data asymmetry.

"Small companies and micro-enterprises don't have access to credit while most of the credit goes to large companies in large volumes. The cost of lending is very high in India. Also, data asymmetry has a big impact on the ability to give loans. That's is where account aggregators will help," Nilekani said. “Goods and Services Tax (GST) data can be used by a small business to get a loan and digital payment history can be used to give loans to street vendors,” he said.

The account aggregators are a new class of non-banking financial companies (similar to payment aggregators) approved by the Reserve Bank of India to manage consent for financial data sharing.

Some of the top lenders in the country such as the State Bank of India, HDFC Bank, ICICI Bank, IDFC First Bank, Axis Bank and Bajaj Finserv have come on board to usher in this new credit paradigm, according to iSpirt website.

The thinktank called the development a “fixed line to mobile telephony” moment for credit borrower referring to the concept of (loan) application to disbursement in five minutes with no human decisions involved.

The National Payments Corporation of India (NPCI) on Wednesday also introduced the UPI AutoPay feature for recurring payments. Payments of up to Rs 2,000 happen through e-mandate while payments above Rs 2,000 require the input of UPI PIN to complete the payment.