UPI empowered marginal borrowers, boosted credit access: Study

NEW DELHI: The Unified Payments Interface (UPI), since its launch in 2016, has vastly transformed financial access in the country, enabling 300 million individuals and 50 million merchants to perform seamless digital transactions, and till October last year, 75% of all retail digital payments in India were made through UPI, according to a research paper released on Saturday.
“Within a short span, UPI led to exponential penetration of digital payments across India and is used at all levels from street vendors to large shopping malls,” says the paper, prepared by IIM and ISB professors
The paper says that UPI has enabled underserved groups, including subprime and new-to-credit borrowers, to access formal credit for the first time. “In regions with high UPI adoption, loans to new-to-credit borrowers grew by 4%, and to subprime borrowers by 8%,” the paper said, adding the average size of a fintech loan was Rs 27,778 – about seven times the rural monthly expenditure.
The authors said fintech lenders scaled rapidly, increasing their loan volumes 77 times, far outpacing traditional banks in catering to smaller, underserved borrowers.
The rapid adoption of UPI was possible due to affordable internet across the country.
“The affordability of digital technology played a critical role, enabling widespread UPI adoption in rural and urban areas alike,” according to the paper.
The authors highlighted how credit growth was aided by UPI adoption. It said that a 10% increase in UPI transactions led to a 7% rise in credit availability, reflecting how digital financial histories enabled lenders to assess borrowers better. “Between 2015 and 2019, fintech loans to subprime borrowers grew to match those of banks, with fintechs thriving in high UPI-usage areas,” the paper said.
It also highlighted the fact that despite the credit surge, default rates did not rise. This demonstrated that UPI-enabled digital transaction data helped lenders expand responsibly.
The authors said the success of UPI has global implications and India could play a leading role in helping other countries adopt the technology.