Credit Line on UPI: Promise, Pitfalls, and Possibilities

The Indian payments landscape has been dramatically uplifted by UPI, which has become the backbone of instant, seamless payments for millions of citizens. With the introduction of credit lines on UPI, industry watchers are asking if this innovation can mirror UPI’s runaway success or if it faces unique hurdles. While credit line on UPI is one of the most exciting financial offerings, it is debatable if it would reach the scale of UPI. This was the subject of a roundtable discussion organized by Mint in association with Pine Labs.

What is Credit Line on UPI

A key question in the financial sector is whether credit lines on UPI are merely an experiment, a strategic priority for banks and fintechs, or an inevitable evolution in digital finance. The panelists brought a range of perspectives.

“It’s an inevitable evolution for sure,” said Venugopal Choudhary, chief business officer, at Pine Labs Credit+. “We’re witnessing a generation that is UPI-first. The convenience and flexibility of UPI, especially for the next generation of users, makes credit line on UPI not just an experiment or a priority, but an eventuality.”

This belief was echoed by Sujeet Sinha, chief AI officer and head of payments at Sarvatra Technologies. “The rails are laid, the appetite for digital credit is growing, and the ecosystem is evolving to support this.”

Akshay Sanap, senior product manager at Amazon, also saw this progression as natural: “With the benefits and reach of UPI, a credit line is a logical next step for financial services in India.”

However, not everyone agreed.

Gopal Tripathi, president & head treasury & capital markets at Jana Small Finance Bank, described it as a strategic priority, especially for institutions focused on inclusion and operational efficiency. “With our customer connect, even as a small finance bank, we view this as a top priority for driving inclusion and operational efficiency,” he said.

Meanwhile, both Girish Parpillewar, business head – cards, Unity Small Finance Bank and Ananth Babu, head cards, payments at CSB Bank, described the product as evolving.

Parpillewar, drawing on his experience across multiple payment waves, observed, “This one is still taking shape; we’re experimenting and learning.” Babu added that it’s a rapidly evolving space and quite a few use cases have come up.

What is holding back Credit Line on UPI?

Despite optimism, the adoption of credit lines on UPI faces real-world constraints. The conversation quickly pivoted to what is holding the product back—risk, readiness, or economics.

Babu emphasized the blend of readiness and risk appetite that lenders must have: “As a lender, you will need alternate data, and you need to be willing to experiment on the margins.”

Parpillewar highlighted the complexity of underwriting, stating, “Risk is the biggest challenge. How do you underwrite a borrower in real-time, especially with little or no credit history? Until banks figure this out, scale will be a challenge.”

For Tripathi, user-side economics were a primary concern: “Many potential users don’t have smartphones—so the first credit line might need to help them acquire one. Reducing operational costs through digital disbursal is also vital.”

Sanap agreed that both economics and risk are at play: “Existing credit instruments have larger ticket sizes. With UPI, we’re looking at much smaller amounts, raising the question of whether the economics work out.”

Sinha singled out risk as holding the product back, “Unsecured lending has seen stress in recent years. Traditional underwriting doesn’t fit this product. We need new, real-time methods. The operational and credit cost structures are leaner than credit cards, but risk remains.”

Choudhary summarized the state of the industry, “We’re still figuring out the right balance. The industry is evolving its understanding of risk, readiness, and economic viability. The tools exist, but the answers are still emerging.”

To this, Parpillewar added that data readiness is limited, “Account aggregators are limited in reach. The tech is ‘ready’ only for digital-savvy customers. Financial literacy and broader integration are needed.”

Is the Technology Ready for Mass Scale?

With digital rails established, the question arises: Is technology still a barrier, or have we moved on to other challenges?

Sinha argued that the technology is already in place, “We’re ready. The core rails exist and 75–80 crore people have smartphones. It’s not just for the subprime segment; convenience is a universal need. What’s lacking isn’t tech, but risk appetite and innovative product design.”

Sanap concurred, “Technology is not the issue; it’s risk and economics that concern me. The convenience factor is proven, as with RuPay credit cards.”

Choudhary pointed to generational shifts, “The next generation is UPI-first. If we can package credit lines with the features of credit cards—cashback, rewards, lifestyle benefits—why wouldn’t it work?”

What’s the Breaking Point?

Profitability is a primary concern—can high-volume, small-ticket lending be viable at scale? The panelists weighed in on this.

Sinha likened the product’s economics to a discount brokerage, “Credit on UPI is a ‘Zerodha-type’ product. Opex doesn’t grow exponentially with scale. It’s initially tech-heavy but becomes efficient over time. AI-driven real-time underwriting is the future.”

Meanwhile, Babu explored the economics further, “Small ticket, high velocity loans have high distribution costs, but UPI rails and the QR acceptance infrastructure can be effectively leveraged. Banks do offer products that aren’t profitable on a standalone basis, however these products help build customer stickiness and franchise value.”

Sanap provided a reality check on current economics, “Average ticket size in UPI is ₹200–500. The current transaction volume cannot offset the cost.”

Tripathi emphasized patience: “Launch is still in process. We’re all scaling up. The product needs time to mature.”

Highlighting supply constraints, Parpillewar averred, “Supply is a problem—few issuers are in the market. Until more banks participate, scale and profitability will remain distant.”

Can Credit Line on UPI Replace Credit Cards?

With UPI’s rapid ascension, is it likely that credit lines on UPI could eventually render credit cards redundant? Given that Gen Z, in particular, no longer even take out their wallets and opt for most transactions with their phone apps, this is a very real possibility.

Taking a stance, Choudhary predicted, “Ten years from now, banks may stop issuing credit cards. Everything could move to UPI credit lines, which are more convenient and customizable.”

Tripathi saw more immediate operational benefits, believing that, “UPI CL will immediately reduce operational costs. For microfinance institutions, this is transformative.”

Babu was more cautious: “I don’t think parity with credit cards is possible any time soon. CL on UPI is an evolving product with its own economics. With a provision for interest-free periods, onboarding fees, penal charges etc. will be important revenue streams.”

The Revenue Model: Where is the Money?

As with any credit product, sustainability depends on a viable revenue model. The panel discussed how banks and fintechs can make money.

Tripathi was very clear, “Interest is a must on utilized lines. A revolving credit structure makes it sustainable for banks.”

Sanap, while identifying innovation opportunities, said, “Risk-based pricing is an innovation opportunity. Consumers are willing to pay for value, not just low prices.”

Choudhary suggested that a policy nudge could help, “If RBI allows MDR for credit lines on UPI, the product becomes instantly more attractive. A tiered system, quite like first-class and general compartments—could solve for economics.”

Guardrails and Systemic Risk

As credit lines expand, so does systemic risk. The discussion turned to how providers can mitigate fraud and defaults.

Sinha stressed the importance of evolving fraud and risk management, “Underwriting must evolve to cover pre-event, during-event, and post-event risks. AI and behavioral data are the way forward, but fraud will always be a moving target.”

Tripathi added that digital rails help, “Segmented use and purpose-specific credit lines can serve as guardrails. End-use monitoring and transaction limits are easier with digital rails like UPI than with traditional credit products.”

To which Choudhary noted, “By design, digital products allow for more dynamic and granular controls than physical products. Real-time monitoring and control will be easier and more effective.”

Sanap advocated for new underwriting models, “Guardrails for CL on UPI must move beyond salary-based underwriting to transaction history and behavioral models.”

Who Will Benefit First?

The full potential of CL on UPI will be realized only when it meaningfully serves new segments and use cases.

Babu outlined the likely adoption path, “Initial phase: pre-approved lines for existing customers. Next: Leveraging alternate data for real-time underwriting and check out finance. Over time, deeper penetration into MSMEs and new-to-credit customers.”

Commenting on the value in platform data, Parpillewar averred, “Alternate data from platforms like Amazon or NPCI’s UPI transactions is a goldmine. If shared, it could revolutionize underwriting and customer targeting.”

Tripathi predicted a wider reach as smartphones become more affordable, “As smartphone affordability rises, the target segment will expand. The inflection point is near—once reached, mass adoption will follow.”

Who Drives Adoption: Banks, NBFCs, or Fintechs?

For CL on UPI to scale, collaboration across the financial ecosystem is vital.

On this issue, Babu stressed that banks would remain central but he also highlighted the importance of user experience. “Banks are the engine, but UI/UX and the merchant ecosystem are crucial. Adoption depends on seamless customer experience and merchant buy-in.”

Sinha stressed the need for agility, “Banks alone can’t drive this. NBFCs and fintechs have the agility needed for rapid scale. If the regulator opens up, adoption will accelerate.”

Foreseeing a synergy, Choudhary called for increased collaboration, “This is a collaboration play. Banks, NBFCs, and fintechs all need to work together to bring scale, innovation, and reach.”

Is CL on UPI Really for the Underserved?

Financial inclusion remains the industry’s holy grail. The panel debated whether CL on UPI can bridge the gap for India’s underserved.

The core question that emerged was: We’ve tried everything for financial inclusion: microfinance, self-help groups, banking correspondents. Can CL on UPI finally bridge the gap, especially for micro-entrepreneurs – for instance, like in the case of a tea seller who doesn’t own a smartphone and therefore can receive digital payments but not make them.

Choudhary remained optimistic, “The design is inherently more inclusive. With more guardrails and lower costs, we can reach segments beyond traditional credit card users.”

Tripathi agreed, “End-use monitoring and targeted product design will allow us to serve new-to-credit customers responsibly.”