The launch of UPI in 2016 has transformed the financial landscape in India. However, there remained a gap in how the credit was accessed.
India’s credit access and repayment system is a lengthy and cumbersome process that feels like a trap more than a solution. The introduction of CLOU (Credit Line on UPI) is set to rewrite the rules of how Indians manage credit and EMIs by integrating credit lines directly into UPI.
In this article, we will take a closer look at how CLOU impacts credit and EMIs.
What Is CLOU (Credit Line on UPI)?
India, which is seeing the rapid growth of digital payments, accounts for 40% of real-time digital transactions worldwide. The increase in financial inclusion has opened up further opportunities, increasing the demand for credit access.
In 2023, RBI proposed expanding the scope of UPI by permitting pre-sanctioned credit lines through UPI in line with their payments vision of 2025.
Credit line on UPI empowers individuals and businesses to access pre-sanction credit on UPI, eliminating the need for multiple credit cards.
For traditional loans, known for their time-consuming and complex process, CLOUs provide real-time access to the credit line. For instance, users can now link their loan accounts with the UPI.
Does CLOU Denote the Evolution of EMIs?
EMIs are traditionally seen as a subset of high-ticket loans like houses, cars, education, etc. Credit cards also offer EMI options; however, the interest rates and fees are often high.
With the adoption of CLOU, credit can be accessed for everyday purchases like groceries, utility bills, and even shopping.
So, CLOU seeks to democratise EMI access, allowing users to convert purchases into manageable monthly payments via UPI with just a few taps. The stress of missed payments, penalties, and drops in credit scores are now being transformed into a more flexible, effortless experience, giving consumers greater control over their expenses.
How CLOU Is Redefining EMIs and India’s Credit Landscape?
Let’s understand how the adoption of CLOU has redefined the culture of EMIs in India:
1. Real-time EMI Conversion
Consumers in a growing credit market like India prefer high-value instalment purchases. India’s EMI market has grown substantially, with the user base reaching 100 million by FY26, primarily driven by affordability and convenience.
The pre-approved credit lines are readily available at the point of the UPI transaction. It allows users to convert their purchases into EMIs during payment without any manual process. This fast-paced functionality aligns with the rising digitalisation of the economy, where consumers expect convenience in every transaction.
2. Simplified Process
The traditional credit industry requires multiple bank visits, extensive paperwork, and waiting days for approval. With CLOU, the paperwork is largely eliminated. Thanks to the UPI interface, consumers can now make spontaneous purchases.
Further, MSMEs that needed help obtaining quick credit access for their operations can now access credit on the go.
In India, where MSMEs contribute to over 29% of GDP and generate employment for over 120 million people, seamless credit access through CLOU has significant macroeconomic benefits.
3. Lower Rates and Transparent Costs
The EMI facility, especially with credit cards, comes with higher interest rates and hidden fees. CLOU addresses these issues as integration with UPI typically results in lower processing costs.
The savings can be passed on to the consumers, making borrowing more affordable and accessible. The clear, visible terms also enhance trust and encourage responsible borrowing.
4. Financial Inclusion
With over 65% of the population in rural areas lacking proper banking structure, they are vulnerable to informal lending with higher interest rates.
Integration of CLOU into UPI, a platform already familiar to millions, helps target the unbanked and underbanked populations.
Further, CLOU can facilitate the availability of small loans to users with limited credit history.
Also, the digital-first repayment and cashflow-based financing model enables variable repayments and flexible frequency that could suit borrowers.
5. Benefits the Lender
The increased credit penetration expands the customer base and provides new product and service offering opportunities. The digital presence of CLOU lessens the infrastructure and procedural needs and improves operational efficiency.
CLOU provides lenders with rich, real-time transaction data, enabling dynamic user evaluation.
For example, by analysing 6-month UPI patterns, lenders can assess consistent bill payments and income credits.
The comprehensive view allows for more accurate risk profiling, potentially leading to higher credit limits or better interest rates than traditional scoring methods.
Key Challenges of CLOU Adoption
The following challenges need to be addressed for wider adoption and success of CLOU:
1. Regulatory Oversight
Regulators must continually adapt digital lending guidelines to match technological advancements. Balancing innovation with consumer protection is crucial.
Oversight should focus on promoting responsible borrowing and preventing over-indebtedness to ensure sustainable growth in the CLOU ecosystem.
2. Security Threats
Implementing robust encryption and advanced fraud detection systems is crucial to mitigate cybersecurity risks, prevent fraudulent activities, and ensure stringent data privacy protection.
3. User Awareness
Many users may still be unfamiliar with the concept of credit lines or may be hesitant to adopt new financial products. The CLOU would need widespread consumer awareness to reach its full potential.
The Takeaway
As CLOU continues to evolve, it can revolutionise India’s credit landscape. More consumers and businesses embracing CLOU will undoubtedly play a key role in shaping the future of EMIs and credit access in India.
Finezza’s Loan Management System offers real-time tracking, automated workflows, and comprehensive reporting, ensuring effective EMI scheduling and management.
Meanwhile, the Loan Origination System enhances credit assessment capabilities, speeding up the credit line approval process and optimising borrower experiences.
Further, the real-time data reporting and advanced analytics capabilities provide insights into customer behaviour, risk profiles, and payment patterns, helping to fine-tune the credit products.
Contact us for a demo today!
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