In a game-changer move set to reshape the landscape of digital payments in India, HDFC Bank and ICICI Bank, the country’s largest private sector banks, have ventured into the realm of ‘PayLater’ services through the Unified Payments Interface (UPI). This strategic leap follows the Reserve Bank of India’s (RBI) recent approval and aims to capitalize on the public digital infrastructure.
The RBI’s approval has paved the way for a groundbreaking shift in UPI usage. Until now, UPI users could only link their savings accounts, overdraft accounts, prepaid wallets, and credit cards to the UPI system. However, this latest development allows individuals to harness their pre-approved credit lines from banks, making seamless payments possible even when their account balances fall short.
“Under this facility, payments through a pre-sanctioned credit line issued by a scheduled commercial bank to individuals, with the prior consent of the individual customer, are enabled for transactions using the UPI system,” stated the RBI notification.
HDFC Bank has unveiled its ‘UPI Now Pay Later’ product, which is currently in the testing phase but slated for a soon-to-be-launched debut. On the other hand, ICICI Bank has already rolled out its ‘PayLater’ solution. These innovative offerings are essentially overdraft facilities that grant account holders the flexibility to conduct transactions through all UPI-based apps, including Google Pay and MobiKwik, going beyond the traditional credit and debit card options.
Both banks have established a maximum credit line of Rs 50,000, contingent upon the account holder’s eligibility. The interest rate on these credit lines will be calculated based on the number of days the credit line is used. This means customers will only be charged interest for the specific duration they utilize the credit line, a model that promises cost-effectiveness.
However, it’s important to note that this new feature comes with some limitations. Users can only employ this credit towards payments to merchants and not for peer-to-peer (P2P) transactions.
The introduction of ‘PayLater’ on UPI by HDFC Bank and ICICI Bank is expected to be a game-changer in India’s digital payment landscape, potentially compelling pure buy-now-pay-later (BNPL) fintechs and credit card companies to reassess their business models and offerings to ensure customer engagement and relevance, following a regulatory crackdown in 2022.
Other banks are reportedly working on similar products, with industry experts predicting an exciting phase of innovation and competition in the digital payments arena.
The move aligns with the ever-increasing popularity of UPI, as statistics from the National Payments Corporation of India (NPCI) reveal a record-breaking 1,024.7 crore transactions in August, worth Rs 15.18 lakh crore, marking a year-on-year volume growth of 55.6 per cent and value growth of 41.4 per cent. As per PwC’s Indian payments handbook 2022-2027, UPI is poised to dominate almost 90 per cent of total transactional volume in retail digital payments by 2027, expanding its reach into rural areas and tier 3 and 4 cities.
