Revolutionizing Credit: How UPI and Open Banking Empower Borrowers in India

New Delhi (The Uttam Hindu): India's Unified Payments Interface (UPI) has become a game-changer in transforming access to financial services particularly credit for underserved groups in the country. Since its launch in 2016 ,UPI has empowered over 300 million individuals and 50 million merchants driving a financial revolution that allows for seamless digital transactions. By October 2023, UPI accounted for 75% of all retail digital payments in India marking a major milestone in financial inclusion.

One of the most significant impacts of UPI has been its role in empowering marginal borrowers including subprime and new-to-credit individuals. Regions with high UPI adoption have witnessed a surge in credit access. For instance, loans to new-to-credit borrowers grew by 4%, and those to subprime borrowers increased by 8%. Fintech loans with an average size of ₹27,778, have enabled many individuals in underserved areas to access formal credit for the first time—often far exceeding the average rural household's monthly expenditure.

The rapid scaling of fintech lenders has been another highlight. Fintech loan volumes skyrocketed by 77 times far surpassing traditional banks in catering to smaller underserved borrowers. This growth has been supported by the affordability of digital technology which has facilitated the widespread adoption of UPI in both rural and urban regions.

The correlation between UPI transactions and credit growth is also evident. A 10% increase in UPI transactions led to a 7% rise in credit availability, as digital transaction histories allow lenders to assess borrowers more effectively. Between 2015 and 2019 fintech loans to subprime borrowers rose to match those of banks with fintechs seeing the most success in areas with high UPI usage.

Despite the rapid rise in credit access, default rates have not surged, demonstrating that UPI-enabled transaction data has helped lenders expand credit responsibly. This responsible expansion of credit shows that UPI and digital financial data have played a crucial role in reducing the risks traditionally associated with lending.

India's success story with UPI offers a valuable model for other nations. By combining robust public digital infrastructure with open banking policies. India has showcased how to drive financial inclusion, reduce exclusion, and foster equitable economic growth. As the country continues to lead in digital financial innovation UPI and open banking present an inspiring example for global economies looking to harness technology to create a more inclusive financial system.