India's Unified Payments Interface (UPI) achieved a groundbreaking milestone with 15,547 crore transactions worth ₹223 lakh crore between January and November this year, showcasing its transformative impact on digital payments and financial inclusion, the Finance Ministry reported.
Since its launch in 2016, UPI has revolutionized financial transactions in India, enabling over 300 million individuals and 50 million merchants to seamlessly engage in digital payments. By October 2023, UPI accounted for 75% of all retail digital payments in the country.
The Finance Ministry highlighted UPI’s international acceptance in seven countries, including France, UAE, Singapore, Sri Lanka, Mauritius, Bhutan, and Nepal, emphasizing its potential as a cost-effective and efficient alternative for cross-border remittances.
A recent study by professors from IIM and ISB attributes UPI's exponential growth to the availability of affordable internet across the country. The study revealed that a 10% increase in UPI transactions corresponded to a 7% rise in credit availability, allowing lenders to better assess borrowers through digital financial histories.
The study also noted that fintech lenders scaled their loan volumes 77 times faster than traditional banks, particularly catering to underserved borrowers. Remarkably, the credit surge did not lead to higher default rates, highlighting the responsible expansion facilitated by UPI-enabled transaction data.
To enhance financial inclusion further, the Reserve Bank of India (RBI) recently announced its decision to permit Small Finance Banks (SFBs) to extend pre-sanctioned credit lines through UPI. This move is expected to bring low-ticket, short-term credit products within reach of ‘new-to-credit’ customers.
Previously, only Scheduled Commercial Banks could link pre-sanctioned credit lines to UPI accounts, leaving Payments Banks, Small Finance Banks, and Regional Rural Banks out of the framework. With the inclusion of SFBs, the scope of UPI is poised to expand further, promoting equitable economic growth.
The RBI stated, “Credit line on UPI has the potential to make low-ticket, low-tenor products available to customers new to credit. SFBs leverage a high-tech, low-cost model to reach last-mile customers and can play a pivotal role in expanding UPI’s credit reach. Necessary guidelines will be issued shortly.”
With its rapid adoption, robust infrastructure, and focus on financial inclusion, UPI has become a global benchmark in digital payments. Its success not only reshapes India’s financial ecosystem but also positions the country as a leader in fintech innovation, ready to assist other nations in replicating this transformative system
Reported & Written by OnlineWiki Team
Tags
Tech