BENGALURU: Unified Payments Interface (UPI) has enabled underserved borrowers to access formal credit for the first time as loans to new-to-credit borrowers in regions with high UPI adoption have increased by 4% and to subprime borrowers by 8%, according to a study.
Titled Open Banking and Digital Payments: Implications for Credit Access, the study points out that the UPI, since its launch in 2016, has enabled 300 million individuals and 50 million merchants to perform seamless digital transactions. It points out that the average size of a fintech loan was R 27,778, which is about seven times the rural monthly expenditure.
Pointing out credit growth through UPI, the study said between 2015 and 2019, fintech loans to subprime borrowers grew to match those of banks, with fintechs thriving in high UPI-usage areas. Also, a 10% increase in UPI transactions led to a 7% rise in credit availability, reflecting how digital financial histories enabled lenders to assess borrowers better, the report stated.
Despite the credit surge, default rates did not rise, showing that UPI-enabled digital transaction data helped lenders expand responsibly, it said.
About 75% of all retail digital payments in the country till October 2023 were done through UPI, adds the study. From 1 million transactions in October 2016, UPI transactions increased to about 10 billion in October 2023.
As per GlobalData research, cash transactions declined from 90% of the total volume in 2017 to less than 60% in 2021, with UPI and other digital transaction systems accounting for the remaining. India’s success with UPI offers a replicable model for other nations, showcasing how combining public digital infrastructure with open banking policies can reduce financial exclusion, foster innovation, it said.