Despite the initial promise, credit transactions on the Unified Payments Interface (UPI) have not gained significant traction. The slow adoption can be attributed to several key factors outlined in a recent article.
Understanding Why Credit on UPI Lags Behind:
One major obstacle is the absence of a defined interchange fee structure for credit on UPI. This lack of clarity creates uncertainty among banks and hinders their willingness to participate fully. Additionally, concerns about possible cannibalization of credit card balances by larger banks have further impeded widespread acceptance.
Another deterrent is the imposition of fees, such as the merchant discount rate (MDR), on merchants for credit transactions. Many merchants, accustomed to free UPI payments through bank accounts, show limited interest in adopting credit transactions.
Furthermore, the integration of loan accounts with UPI handles requires a sophisticated technology stack, posing challenges for banks, particularly smaller and mid-sized ones.
To expand access to credit on UPI, non-banking financial companies (NBFCs) and fintech firms have sought regulatory approval to participate. However, regulatory concerns over an increase in unsecured consumer loans may hinder the entry of non-bank lenders into this space.
Despite the hurdles, enabling NBFCs and fintech firms to offer credit on UPI could potentially boost transaction volumes, especially among underbanked segments. However, regulatory oversight and adherence to know-your-customer (KYC) protocols remain crucial to manage associated risks.
The article highlights the need for addressing these challenges to unlock the full potential of credit on UPI and promote its wider adoption.
Note: The information provided is based on the article “Why has credit on UPI not picked up despite the promise?” published on ET BFSI.
Also Read:Paytm UPI: 5 Easy Steps to Set Up your Bank Accounts
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