Shillong, Dec 7: The recent report, Open Banking, and Digital Payments: Implications for Credit Access, reveals the transformative role of the Unified Payments Interface (UPI) in reshaping credit access and financial inclusion in India. The research, conducted by institutions like ISB, IIM Bangalore, CAFRAL, and Duke University, highlights how UPI has revolutionized financial services since its launch in 2016, enabling millions of individuals and merchants to access seamless digital transactions.
Key Insights from the Report:
Financial Inclusion: UPI has been instrumental in driving financial inclusion, with 300 million individuals and 50 million merchants adopting digital payments. By October 2023, UPI accounted for 75% of retail digital payments in India.
Access to Credit: UPI has empowered marginal borrowers, including subprime and new-to-credit individuals, to access formal credit for the first time. In areas with high UPI adoption, loans to new borrowers grew by 4%, and to subprime borrowers by 8%. With an average size of ₹27,778, Fintech loans were seven times the typical rural monthly expenditure, showing a substantial reach in underserved areas.
Credit Growth: UPI’s digital transaction data has helped lenders assess borrowers more effectively, driving significant credit growth. A 10% increase in UPI transactions led to a 7% rise in credit availability, with fintech loans to subprime borrowers matching those of traditional banks between 2015 and 2019.
Responsible Lending: Despite the surge in credit, default rates did not rise, indicating that UPI-enabled data allowed for safer and more responsible lending.
Role of Affordable Internet: The spread of affordable Internet played a critical role in UPI’s rapid adoption, ensuring that both rural and urban populations could benefit from the system.
Global Impact: India’s success with UPI presents a replicable model for other countries. By combining public digital infrastructure with Open Banking policies, nations can reduce financial exclusion, encourage innovation, and promote economic growth.
This report underscores UPI’s significant role in transforming India’s financial ecosystem, making it a key driver for financial inclusion and equitable economic development.
