10% Rise in UPI Transactions Boosts Credit Access by 7%: Report

The Unified Payments Interface (UPI) has not only revolutionised digital payments in India but has also played a significant role in boosting credit growth, particularly among underserved groups. As of October 2023, UPI accounted for 75 per cent of all retail digital payments in the country, signaling its central role in India’s financial ecosystem. A closer look reveals that UPI’s integration into the financial system has greatly enhanced credit access for millions, especially among new-to-credit and subprime borrowers.

Credit Availability Soars with UPI Transactions
A key outcome of UPI's widespread adoption is the increase in credit availability. Research shows that a 10 per cent rise in UPI transactions correlates with a 7 per cent increase in credit access. This surge in credit can be attributed to the digital financial histories that UPI enables, allowing lenders to better assess borrowers. From 2015 to 2019, fintech lenders, buoyed by high UPI adoption, saw their loans to subprime borrowers match those of traditional banks, marking a significant shift in the credit landscape.

Fintech Lenders Outpace Traditional Banks
UPI’s role in driving credit growth has been especially impactful for fintech lenders, who have expanded rapidly by catering to smaller, underserved borrowers. These lenders have seen loan volumes grow by an astonishing 77 times, far outpacing traditional banks in regions with high UPI adoption. Fintech loans to subprime borrowers increased by 8 per cent, and loans to new-to-credit borrowers grew by 4 per cent. On average, fintech loans amounted to Rs 27,778, a sum that is seven times the average rural monthly expenditure.

Affordable Internet Fuels UPI’s Reach
The affordability of internet services has been a catalyst for the widespread adoption of UPI across both urban and rural India. As the cost of internet access has decreased, more individuals and merchants, especially in rural areas, have turned to digital payment systems, further driving financial inclusion. UPI has bridged the digital divide, enabling millions to access essential financial services and credit for the first time.

Empowering Marginal Borrowers with Financial Inclusion
Since its launch in 2016, UPI has played a transformative role in improving financial inclusion. By enabling 300 million individuals and 50 million merchants to conduct seamless digital transactions, UPI has opened new avenues for financial participation. Particularly for marginalized groups, UPI has made it easier to access formal credit, thus contributing to greater economic empowerment and growth.