India’s success with the Unified Payments Interface (UPI) offers a replicable model for other countries, according to a new paper by experts. The study highlights how UPI has combined public digital infrastructure with open banking policies to reduce financial exclusion, foster innovation, and drive equitable economic growth.
The paper, titled “Open Banking and Digital Payments: Implications for Credit Access,” was written by Shashwat Alok, Pulak Ghosh, Nirupama Kulkarni, and Manju Puri. The study reveals that UPI has enabled underserved groups, including subprime and new-to-credit borrowers, to access formal credit for the first time.
The paper points out that in regions with high UPI adoption, loans to new-to-credit borrowers grew by 4% and to subprime borrowers by 8%. This highlights the platform’s role in making credit more accessible to underserved populations.
Launched in 2016, UPI has transformed financial access in India, helping 300 million individuals and 50 million merchants conduct digital transactions. By October 2023, UPI accounted for 75% of all retail digital payments in India. The affordability of digital technology has been a key factor, enabling widespread adoption in both rural and urban areas.
According to the paper, a 10% increase in UPI transactions led to a 7% rise in credit availability. This shows how digital financial histories have helped lenders assess borrowers more effectively. From 2015 to 2019, fintech loans to subprime borrowers grew to match those of banks, especially in areas with high UPI usage.
Despite the surge in credit, default rates did not rise. The paper suggests that UPI-enabled transaction data helped lenders expand responsibly, reducing the risk of default.
The experts argue that the UPI model can serve as a blueprint for other nations seeking to improve financial inclusion and credit access, ensuring that the benefits of digital payments reach the broader population.
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