UPI Now, Pay Later: 2 Banks Have Rolled Out This Facility
Following the Reserve Bank of India's (RBI) recent expansion of the Unified Payments Interface (UPI) capabilities to include transfers from credit lines, several banks have swiftly introduced this option for avid UPI users.
In a notification dated 4 September, the RBI outlined its plans to broaden the UPI's scope, allowing transfers from pre-approved credit lines at banks, in addition to deposit accounts. The RBI also noted that banks could set terms and conditions for the use of such credit lines in accordance with their board-approved policies.
This development means that the UPI network will now facilitate payments funded by bank-issued credit, potentially reducing the cost of these offerings and fostering the creation of unique products tailored to the Indian market.
Key features of this initiative
Under this system, customers are granted a credit limit with their consent, and once approved, they can utilise the UPI app to make payments even when their bank balance is insufficient. Subsequently, they can repay the bank, similar to settling a credit card bill. The interest charges, if applicable, may vary among banks, with some instituting interest for the number of days it takes to repay the credit. Conversely, certain banks offer an interest-free grace period of 45 days, resembling a "buy now, pay later" scheme.
Banks offering this service
HDFC Bank and ICICI Bank are among the banks that have introduced the PayLater feature via UPI. HDFC Bank's PayLater facility creates a new account when activated on the UPI app, allowing payments to merchants through an overdraft account opened under PayLater on UPI. However, it cannot be used for fund transfers.
ICICI Bank's PayLater service provides instant digital credit for 45 days, enabling bill payments, online shopping, and payments to merchants' UPI IDs. Dues are automatically debited from the ICICI Bank savings account. Nevertheless, it cannot be used for credit card payments or fund transfers to other bank accounts.
Noteworthy differences
Previously, UPI functionality encompassed savings bank accounts, account overdrafts, prepaid wallets, and credit cards. With this new feature, users can now utilise a pre-approved credit limit, such as Rs 50,000, for QR-enabled payments, even if their bank account or mobile wallet lacks the necessary funds. This concept is akin to a credit card but distinguishes itself by not requiring the possession of an actual credit card.
