UPI now, pay later: 2 banks have rolled out this facility

Soon after the Reserve Bank of India (RBI) expanded the scope of Unified Payments Interface (UPI) by enabling transfer from credit lines, a few banks have rolled out this facility for ardent UPI users.

In a notification issued on Sept 4, the banking regulator had proposed to expand the scope of UPI by enabling transfer from pre-sanctioned credit lines at banks, in addition to deposit accounts.

The RBI had further stated that the banks may stipulate terms and conditions of use of such credit lines as per their board approved policy.

This effectively means the UPI network will facilitate payments financed by credit from banks. This can reduce the cost of such offerings and help in development of unique products for Indian markets.

What are the main features?

In this, a customer will be extended a credit limit of a pre-approved amount with his/her consent. Once s/he is given a credit line, s/he can spend money via UPI app even when he does not have money in his bank.

And then he can return the money to the bank later just as a credit card bill is cleared. Since banks are free to frame their own rules with regards to this, some banks charge interest for the number of days it took to return the money.

There are some banks, at the same time, that offer an interest free period of 45 days during which one can return the money without having to pay any interest. This is quite similar to the buy now, pay later scheme.

Which banks have offered it so far?

HDFC Bank and ICICI Bank have started offering this facility of PayLater via UPI. HDFC Bank offers PayLater facility wherein a new account gets created when you activate PayLater on your UPI app.

It is vital to note that one can make payments to merchants through HDFC's overdraft account opened under PayLater on UPI. This can't be used for carrying out fund transfer.

ICICI Bank also offers PayLater to offer instant digital credit for 45 days that can be used to pay bills, shop online and make payment to any merchant's UPI ID instantly. The dues are debited automatically from ICICI Bank savings account.

This can't be used for making credit card payments or to transfer funds to other bank accounts.

How is it different?

Earlier, UPI’s functionality was accessible to savings bank account, account overdraft, prepaid wallets and credit cards but now this new feature allows users to exhaust a credit limit of a pre-approved amount, say ₹50,000 via QR-enabled payments. This will work even if the user does not have the necessary amount in his bank account or mobile wallet.

This is quite similar to a card but the only difference lies in the fact that this can be used without even holding a credit card.