Explained: How to make payments using credit on UPI

As a customer, you have the option to use a pre-approved credit limit at the point of sale, integrated into the UPI platform

Do you often find yourself short of money before the month ends? You now have a credit line option on the Unified Payments Interface (UPI). In September 2023, the Reserve Bank of India (RBI) allowed payments to be financed by banks within the UPI ecosystem. This initiative aims to lower transaction costs and encourage the development of innovative financial products tailored for the Indian market.

How does UPI credit work for you?

As a customer, you can utilise a pre-approved credit limit at the point of sale, integrated into the UPI platform. This feature offers transparent terms and flexible repayment options, extending up to a month.

"This allows users to plan their finances and line up larger purchases according to their spending capacity. Moreover, using credit on UPI eliminates the need to carry multiple credit cards or withdraw cash from banks and ATMs, thus making transactions efficient, seamless, and convenient," said Atish Shelar, COO of Tech Fini.

Benefits of linking your credit card with UPI?

Linking your credit card to UPI not only simplifies your payments but also puts you in full control of your financial transactions, with real-time notifications for every transaction. This could help you manage your finances better and protect against fraud.

For now, Axis Bank, HDFC Bank, ICICI Bank, PNB, and SBI offer UPI on credit. The facility is also available on BHIM, Google Pay, Paytm, and Payzapp.

Why are fintech firms warming up to UPI credit lines?

The integration of credit lines within UPI is not just a technological advancement; it's a strategic move by fintech companies to enhance their service offerings. "By embedding credit lines, fintech companies can enable easy payment solutions, like fund transfers, repayment of credit, and credit disbursements," Shelar stated. This strategy allows them to reach a broader customer base while offering competitive rates and reducing operational costs.

What benefits await you?

The inclusion of credit facilities in UPI offers several benefits, including the ease of conducting transactions through any UPI-enabled application. This convenience means you can access your funds anytime, anywhere, without the hassle of juggling multiple platforms or enduring lengthy approval processes. Whether it's paying bills or covering unexpected expenses, this flexibility is a significant advantage.

How to make payments using credit on UPI?

To make UPI payments using your credit card, you need to link your card. Here's how:

1. Select UPI as the payment method

2. Link your credit card to your UPI account

In the UPI payment interface, there will be an option to link a new payment method.

Details Needed: Enter your credit card information, including the card number, expiration date, and CVV (Card Verification Value).

3. Authenticate your card

Some systems may require a one-time authentication of your credit card, possibly through an OTP (One Time Password) sent to your registered mobile number or email.

4. Transaction authentication

Once your credit card is successfully linked to your UPI account, for each transaction, you’ll need to enter your UPI PIN.

This PIN is different from your credit card PIN; it's a secure code you create when you set up your UPI account for the first time.

5. Confirmation of transaction

After entering the UPI PIN and the transaction being authorised, the payment will be processed.

Interest rates and tenure explained

"UPI credit typically doesn't involve tenure options or interest rates in the traditional sense, as it is primarily a payment interface for instant money transfer," explained Shelar. However, some financial institutions may offer lending products linked to UPI, with varying terms. He advises users to review the terms and conditions carefully before proceeding.

The future of UPI in India

In the next five years, UPI is expected to become even more integral to India's digital economy, with increased security measures and broader service integrations. "UPI will boost financial inclusion and change the way people manage their finances," projected Shelar.

But challenges exist

Despite the benefits, the adoption of credit transactions via UPI has faced challenges. Uncertainty around interchange fees and lower adoption rates among small merchants have slowed the expansion of credit transactions through UPI. This issue has been exacerbated by concerns over the impact on credit card balances by larger banks.

The imposition of fees like the Merchant Discount Rate (MDR) on credit transactions has also deterred merchants, accustomed to free UPI transactions, from adopting UPI credit. Business Standard earlier reported that this had led to low transaction volumes.

UPI's market potential

With over 11 billion UPI transactions recorded monthly and more than 300 million users engaging with the payment method, the UPI platform represents a vast, untapped market.