Allow NBFCs to access UPI payments platform: FIDC urges Finmin

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The Finance Industry Development Council (FIDC) has suggested allowing non-banking finance companies (NBFCs) membership in the Unified Payment Interface (UPI) network so as to offer ‘Credit on UPI’ to their customers. 

This representative body of NBFCs has also urged the Finance Ministry’s Department of Financial Services (DFS) to permit NBFCs to access overdraft facilities from UPI. 

Including NBFCs in the UPI network would boost competition, improve services, and reduce transaction costs, FIDC has submitted to DFS Secretary Vivek Joshi.

These recommendations were part of policy suggestions submitted to the Finance Ministry after a meeting on May 16 with top NBFC chief executives that DFS had to address sector challenges, sources said.

Currently, credit on UPI, through credit cards and pre-approved credit lines, has been reserved only for banks. So far, NBFCs have not been allowed to access the UPI payments platform to provide the same facility to their customers.

Allowing NBFCs to have membership in the UPI network can significantly benefit the financial ecosystem by promoting financial inclusion, enhancing competition and innovation, expanding the digital payments landscape, leveraging a broader customer base, and improving access to credit, FIDC has said.

Partnership Potential

FIDC has submitted to the finance ministry that the volume of transactions being generated currently through credit on the UPI platform has been minimal so far, owing to the difficulty faced by the ecosystem players.

It is therefore imperative that private players be allowed to use the UPI platform, as they are usually the drivers of ‘small credit’ on a massive scale. Allowing NBFCs will also allow more partnerships and co-lending in this space, according to FIDC.

Considering the fact that the Upper Layer NBFCs are now subjected to regulations akin to those of banks, it is imperative that NBFCs are also permitted to carry out certain activities that are so far only restricted to banks, FIDC has submitted. 

The Reserve Bank of India (RBI) can impose strict guidelines to ensure that NBFCs maintain high standards of data security and customer protection, mitigating potential risks, according to FIDC.

The inclusion of NBFCs would expand the digital payments ecosystem, which would play an important role in achieving the goal of a cashless economy. With more players in the UPI network, the adoption of digital payments can accelerate, reaching a broader segment of the population, FIDC has submitted.

Increased interest

A recent study of lower middle-class consumers in the country showed that there is increased interest among such consumers in the adoption of ‘Credit on UPI’, which allows instant credit access through UPI-enabled apps.

Interestingly, the reasons such consumers want to use ‘Credit on UPI’ include a reduced timeframe for taking loans, ease of payments at retail stores, the probability of getting better offers, and lesser charges.