The National Payments Corporation of India (NPCI) has introduced a revolutionary product: the ‘Pre-sanctioned Credit Line at Banks through UPI’. This innovative credit line functions similarly to a credit card but without the physical plastic card. It allows individuals and businesses to access pre-sanctioned credit lines from banks linked to their UPI accounts. Could this new credit line replace entry-level credit cards?
Key Features:
- Pre-Sanctioned Credit Line:
- Linked directly to UPI accounts.
- Allows for low-ticket retail loans for regular payments.
- Participating Banks and Apps:
- Axis Bank, HDFC Bank, ICICI Bank, Indian Bank, and Punjab National Bank have activated their credit lines.
- BHIM, Google Pay, Paytm, PayZapp, and Navi apps support the credit line feature.
Usage:
- Payments:
- Customers can use their credit limit to make payments to online and offline merchants without using their bank balance.
- At the end of the statement cycle, dues must be cleared within the specified timeframe, similar to credit cards.
- No Transaction Fees:
- Currently, banks do not charge transaction fees for using the credit line on UPI.
- Banks do levy credit disbursement and documentation charges.
Restrictions:
- Merchant-Only Payments:
- The credit line can only be used for payments to merchant UPI IDs, not for P2P (Peer-to-Peer) UPI transactions.
- High-Risk Transactions:
- Some banks restrict the use of the credit line for certain high-risk transactions, such as gold purchases, bitcoin trading, and stock market trading through apps.
Credit Line Types:
- Interest-Free Period:
- Some versions offer an interest-free period for repayments, similar to credit cards.
- Overdrafts and FDs:
- Banks are also offering credit lines in the form of overdrafts in regular bank accounts and against FDs (fixed deposits).
Potential Impact:
- Low-Cost for Merchants:
- Merchant Discount Rate (MDR) on UPI-based credit lines is expected to be much lower than conventional credit cards, which typically have an MDR of 2%-3%.
- Attractive for Small Transactions:
- With no transaction charges currently, customers may find UPI credit lines more attractive for small-ticket transactions.
Expert Opinions:
- Potential Disruption:
- Experts believe that the UPI credit line could challenge entry-level credit cards. The lower cost for merchants and ease of use for customers could lead to increased adoption.
- There is a possibility that merchants may prefer UPI credit lines over credit cards due to the lower MDR, potentially reducing credit card acceptance.
NPCI’s new UPI credit line offers a convenient and cost-effective alternative to entry-level credit cards. As more banks and apps integrate this feature, it could significantly impact the credit card market, especially for small-ticket transactions. Will this new credit line replace entry-level credit cards? Only time will tell, but the potential for disruption is clear.