Credit on UPI: Borrowing at the Tap of a QR Code

How India allowed credit cards and pre-approved credit lines to work through UPI, why this could expand access to credit, and the risks for borrowers.

UPI made paying from a bank account as simple as scanning a QR code. The next step is letting people pay with borrowed money the same way.

RuPay credit cards on UPI

In 2022, the RBI allowed RuPay credit cards to be linked to UPI. Customers can pay at any merchant’s UPI QR code using their credit card, not just card-accepting shops. This greatly expanded where credit cards can be used, especially at small shops that don’t have card machines.

Credit lines on UPI

In 2023, the RBI allowed banks to offer pre-sanctioned credit lines through UPI. A bank can approve a small credit limit for a customer, who can then spend it through UPI apps. This is designed to extend small-ticket credit to people who don’t have credit cards, including small businesses and first-time borrowers.

Why it matters

Financial inclusion: most Indians don’t have credit cards but many use UPI.
Data-driven lending: UPI transaction histories can help lenders assess creditworthiness of people without formal credit records.
Merchants: small shops can accept credit payments without card machines.

Economics for merchants

Payments from bank accounts through UPI have no merchant fees for most transactions. Credit card payments through UPI do carry fees for larger merchants, since lenders need revenue to cover credit costs.

Risks

Overborrowing: easy, invisible credit at a tap can lead to spending beyond means.
High interest: credit lines and card balances can carry high rates if not repaid on time.
Credit scores: missed payments damage credit histories.
Confusion: users may not realise they are paying with credit rather than their own money.

Tips

Check whether a payment is from your bank account or a credit line.
Repay in full by the due date.
Treat credit on UPI like any other loan.

The shopkeeper's stock

A kirana owner uses a small credit line on UPI to pay a wholesaler for Diwali stock, repaying within a month as sales come in. For him, it is cheaper and easier than borrowing from a moneylender.

Thinking UPI credit is free because UPI payments are free

Credit on UPI is still borrowing. Interest and fees apply if not repaid on time.

Key takeaways

RuPay credit cards could be linked to UPI from 2022.
Banks can offer pre-sanctioned credit lines through UPI since 2023.
This could widen access to credit using UPI data.
Overborrowing, interest and confusion are key risks.