The Unified Payments Interface (UPI), launched in 2016, has dramatically reshaped financial accessibility in India, enabling 300 million individuals and 50 million merchants to conduct seamless digital transactions. According to a research paper released on Saturday, UPI now accounts for 75% of all retail digital payments in India as of October 2023.
The study, prepared by professors from the Indian Institute of Management (IIM) and the Indian School of Business (ISB), highlights the swift and widespread adoption of UPI, which has penetrated every segment of society, from street vendors to large shopping malls.
Empowering Underserved Groups With Credit
The paper also reveals UPI’s crucial role in providing underserved groups, such as subprime and new-to-credit borrowers, access to formal credit for the first time. Regions with high UPI adoption saw a 4% growth in loans to new-to-credit borrowers and an 8% rise in loans to subprime borrowers. The average size of a fintech loan stood at Rs 27,778, nearly seven times the typical rural monthly expenditure.
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Fintech lenders experienced explosive growth, with loan volumes increasing 77 times, far outpacing traditional banks in catering to smaller, underserved borrowers.
Affordable Internet Drives UPI Adoption
A key factor driving the rapid adoption of UPI is the availability of affordable internet across the country. According to the research, this digital technology’s affordability has been pivotal in enabling widespread UPI use in both urban and rural areas, bridging the digital divide.
Credit Growth Linked To UPI Usage
The study also reveals that UPI adoption has positively impacted credit growth. A 10% increase in UPI transactions led to a 7% rise in credit availability, reflecting how digital financial histories facilitated more accurate borrower assessments. Between 2015 and 2019, fintech loans to subprime borrowers grew to match those offered by banks, with fintechs thriving in areas with high UPI usage.
Despite the surge in credit, the paper notes that default rates did not rise, suggesting that UPI-enabled digital transaction data helped lenders expand responsibly and mitigate risks.
Global Implications Of UPI’s Success
The authors concluded that the success of UPI could have global implications, positioning India as a leader in helping other countries adopt similar digital payment technologies. UPI’s transformative impact on financial inclusion and credit access presents a model for other nations to follow.
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