From Payments To Credit: How UPI’s 84% Share Is Opening The Door To 450 Million New Borrowers?

The Unified Payments Interface (UPI) has already changed the way India transacts, but its next phase is even larger, moving from a payment rail to a layer of credit and financial infrastructure. With over an 84% market share in FY25 in India's digital payments landscape as per Angel One, UPI is no longer simply a channel for peer-to-peer or merchant payments; it is quickly becoming the digital trust layer of the country's financial architecture.

This change is altering the relationship between consumers, banks, and fintechs. UPI's immense scale, with billions of transactions each month, and its nearly 500 million monthly user base in both metropolitan and smaller towns, presents an unparalleled basis for discovery, delivery, and innovations in credit.

What once was chiefly a means of transferring value is now taking form as a platform that has the potential to unlock pathways to formal credit for more than 450 million new-to-credit Indians, as per World Bank data cited by TransUnion CIBIL's insights as of December 2024.

The arrival of capabilities like UPI Credit Line, UPI Lite, and RuPay Credit Cards on UPI is a clear marker of a transition in this direction. These innovations allow customers to connect pre-approved credit lines or cards directly to UPI apps, blurring the distinction between payments and borrowing.

"For consumers, it means immediate and frictionless access to credit without the hassle of a traditional loan application process. For lenders and fintechs, it means real-time visibility into repayment behaviour, transaction data, and spending patterns creating a data-rich ecosystem that makes credit scoring easier and dial down underwriting risk," said Amit Kumar, Chief Technology Officer, Easebuzz.

As the ecosystem matures, it also gives banks, NBFCs, and fintech innovators the ability to create entirely new kinds of embedded finance. For example, small businesses can better access working capital at point of sale; students can apply for micro-credit to purchase online learning tools; and consumers now can access real-time BNPL (Buy Now, Pay Later) access to purchase goods within relevant financial apps, all utilizing UPI's rails. This embedded concept not only promotes financial inclusion but also improves efficiency by embedding credit within a user's daily financial life.

"UPI's democratization of credit also fits within India's larger aim of constructing open digital public infrastructure. Just as Aadhaar and DigiLocker revolutionized identity and document forms of management, UPI's credit functionality appears to be preparing for a similar evolution in lending. By integrating credit into an interactive payments network, which is subsequently supported by government trust, UPI will harness transparency, reduce fraud, and promote responsible borrowing," commented Amit Kumar, Chief Technology Officer, Easebuzz.

With the acceptance and adoption of UPI as a global payment mechanism, its growth as a ubiquitous mechanism of payment has eased digital transactions while significantly empowering credit inclusion. UPI makes bridging the gaps in digital payments seamless, enabling the linking of credit/debit cards and small-ticket credit lines to UPI.

"This also allows many businesses to receive financing, which is quicker and more accessible at a lesser interest rate or interest-free periods. UPI is facilitating increased access to credit through a digital footprint which helps lenders assess a customer's credit risk, while providing users access to credit limits pre-approved from financial institutions based on their spending behaviour associated with their UPI account," said Mohit Aggarwal, Co-Founding of Instifi.

"We're seeing a lot more small and medium businesses engaging with digital payments as a means of managing their cash flow and acquiring faster access to credit. The digital payment system in India has been fortified with the increased use of QR codes, secure payment initiatives and connectivity between platforms, all of which make payments easier and more inclusive," Mohit Aggarwal further added.

For the fintech ecosystem in India, this development presents a once-in-a-generation opportunity. Startups can utilize UPI's open APIs to build intelligent, data-driven, and inclusive credit products, micro-loans or dynamic credit lines that embed themselves in the different financial realities across India.

By combining AI, alternative data, and the UPI infrastructure it could change how creditworthiness is assessed, making credit more equitable and valued.

Ultimately, UPI's expansion beyond a payment instrument represents an inflection point in India's financial future. It also represents a progression from digital transactions to a financially empowered digital ecosystem, where empowerment, data, and innovation arrives at a vision of more intelligent, impactful, and inclusive credit access for millions.

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