Curated By: Business Desk
Last Updated: September 06, 2023, 18:27 IST
There are multiple benefits of pre-approved credit cards.
The Unified Payments Interface (UPI) is an instant payment system that was developed in India.
The Reserve Bank of India (RBI) enables the use of pre-sanctioned credit accounts for payments through the Unified Payments Interface (UPI). The initiative was taken to expand the use of UPI and the consumer credit market in India. UPI is an instant payment system that was developed in India. The interface allowed transactions between person-to-merchant (P2M) and peer-to-peer (P2P). It was used on mobile devices for instant payments. In a pre-sanctioned credit line, the bank will offer consumer credit of a predetermined amount that is based on the details related to the credit score. The consumer will not require a debit or credit card to access the credited amount and will only be charged for the specific amount used.
The RBI has approved that pre-sanctioned or pre-approved loans will also be included in the UPI system. In April this year, the RBI proposed expanding the reach of UPI transactions in India. On Monday, September 4, the pre-sanctioned credit lines were circulated at banks.
Including the pre-sanctioned loans through UPI will help reduce the cost of certain offerings and will also help in developing unique products for Indian markets. For instance, if a customer has a pre-approved credit line of Rs 60,000, the user may use this amount as a loan for payments through UPI.
As per reports, transactions through UPI crossed the 24 billion mark in August and were approximately 10.9 billion in July. The RBI stated on September 4 that under this facility, payments through pre-sanctioned credit lines issued by a scheduled commercial bank to individuals, with prior consent from the customer, are enabled for transactions using the UPI system.
Bankers stated that the success of the new launch would depend on whether the new rules would allow the banks to structure their short-term loans, similar to credit card interest-free credit for 30 days. UPI’s advantage over credit cards will be that the banks will not be signing up new users and will not incur expenditures in issuing cards or other requirements. Hence, credit on UPI will enable facilities anytime or anywhere and will allow users to make purchases on credits. Banks will also save costs as they will extend credit to their existing users. Along with lower costs, this will enable smaller credit.
RBI Governor Shaktikanta Das stated in an interview, “RuPay credit cards were permitted to be linked to UPI.” Following this, he also mentioned, “It is now proposed to expand the scope of UPI by enabling transfer to pre-sanctioned credit lines at banks.”