Credit on UPI stuck on fee structure, low adoption

A LACK OF clarity on the interchange fee structure and lower adoption among smaller merchants have weighed on the credit volume through the Unified Payments Interface (UPI), say experts.

- AJAY RAMANATHAN

While the National Payments Corporation of India (NPCI) has not officially disclosed volumes for credit on UPI, industry experts acknowledge that the volumes have been negligible so far. "Credit has associated cost, it is not free and a fee is levied on merchants in the form of merchant discount rate (MDR) for each transaction," says Rohan Lakhaiyar, partner, Grant Thornton Bharat.

He said since merchants are used to free UPI payments through bank accounts, the adoption on the demand side of the payment flow is limited. Due to low demand, only a few lenders have enabled and promoted credit on UPI on the supply side, which further limits its adoption.

In September, the Reserve Bank of India enabled the UPI network to facilitate payments financed by banks. The move was intended to reduce the cost of such offerings and help in development of unique products. Under this facility, payments through a pre-sanctioned credit line issued by a bank to individuals with prior consent of the individual customer are enabled for transactions using the UPI system.