Consumption unleashed with Credit line on UPI

financialexpress.com:

The recent launch of ‘Credit line on UPI’ by NPCI is a pivotal point in India’s credit journey, one that will give rise to several fintechs. In essence, Credit line on UPI is set to become what Debit Card EMI aspired to be, and more.

Credit line on UPI makes all pre-approved bank lines available at the point of consumption, i.e. 30M+ UPI merchants and 1M+ terminal merchants (carrying ~6M terminals), accessible through any UPI app. Currently, popular options that provide credit at the point of consumption include Credit Cards, Debit Card EMI and Bajaj EMI Card, each fraught with its own limitations.

Credit Cards are restricted to only the top 2.5% or 35M users, leaving several segments underserved. It is the most complex financial product from a back end perspective, a 5-in-1 product encompassing payments, credit, rewards, status and credit builder. Due to this complexity, many banks, despite having large existing-to-bank (ETB) customer bases, struggle to effectively run credit card programs. Additionally, the economics of credit cards, while intriguing, are highly complex.

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About 75% of the credit card market is concentrated among just four banks (HDFC, SBI, ICICI, Axis). These banks have primarily focused on distributing credit cards to ETB base, being conservative with new-to-bank (NTB) customers. This approach has resulted in low approval rates, which combined with a prohibitive CAC (customer acquisition cost) of around Rs 5K per activated NTB credit card customer, has prohibited the issuance of small credit lines ( less than Rs 50K). These small lines are economically infeasible given the higher payback cycles, leaving the low-to-mid