For the modern Indian consumer, convenience is king. And UPI credit, with its promise of instant, hassle-free access to funds, has tapped into a need that traditional financial systems had long overlooked. Today, young users can finance their day-to-day purchases—from online shopping to emergency expenses.

It’s considered a great equaliser, bringing access to credit to those who may never have been considered by formal banking channels. In fact, the surge in UPI transactions, which crossed 9 billion in May 2023, illustrates just how ubiquitous the platform has become.

A shift in consumer behaviour

UPI credit has revolutionised the way Indian consumers interact with money, offering instant access to funds for everyday transactions. This shift has particularly resonated with younger users, driving impulsive spending and reshaping financial behaviours. However, while UPI credit democratises access to credit, it also presents challenges, such as over-indebtedness, that must be carefully managed.

Here’s how UPI credit is transforming consumer behaviour in India.

  • UPI credit disrupts traditional credit by offering instant access, promoting a ‘spend first, think later’ mentality, known as frictionless finance.
  • 40% of UPI credit transactions in 2023 were impulse buys (PayU).
  • UPI credit appeals to younger users (millennials and Gen Z), providing the feel of disposable income without immediate financial burden.
  • 80% of UPI credit users are under 35, and 65% use it for discretionary purchases.
  • The ease of access can lead to long-term debt risks, with missed UPI repayments up by 22% since 2022.
  • UPI credit democratizes access to credit, particularly for lower-income segments, but risks over-borrowing and financial instability.
  • Stronger consumer protection and financial literacy initiatives are needed to manage this shift.

Where there is UPI credit, there is financial inclusion

UPI credit has also played a crucial role in financial inclusion. For decades, India’s banking system catered to a limited segment of the population, leaving vast patches underserved or excluded. UPI credit changes this dynamic by offering credit to individuals with no formal credit history, effectively lowering the entry barrier for millions of consumers. The data from the Reserve Bank of India reveals that over 400 million bank accounts have been linked to UPI, offering previously unbanked populations a pathway to participate in the formal financial ecosystem.

However, with this democratisation of credit comes a downside. While UPI credit increases access, it also presents the risk of over-indebtedness, particularly among users unfamiliar with managing credit. The allure of ‘buy now, pay later’ can quickly lead to financial strain, as many consumers fail to realise the long-term consequences of debt accumulation.

The need for promoting responsible credit use

The rapid growth of UPI credit calls for more than just celebration.

While the benefits are clear, it is essential for fintech leaders and policymakers to ensure that UPI credit remains a tool for empowerment rather than a gateway to financial distress.

Financial literacy campaigns must be integrated into the expansion of UPI credit. Teaching consumers how to manage credit responsibly can mitigate risks associated with overspending and over-indebtedness. Many younger users may not fully understand the repercussions of using UPI credit repeatedly, treating it as an extension of their income. Banks and fintech firms must collaborate to provide transparent, user-friendly education on interest rates, repayment schedules, and the importance of budgeting.

Furthermore, policymakers have a vital role to play in shaping regulations that protect consumers. Striking a balance between innovation and consumer protection is crucial. Initiatives such as capping credit limits for first-time users or introducing mandatory cooling-off periods between credit transactions could help curb impulsive spending and ensure that credit use remains sustainable.

Abel Thomas Pallickal

Abel Thomas Pallickal is a Marketing Executive at Clayfin. He’s passionate about crafting marketing strategies that connect with audiences. Outside of work, you’ll find him on bike rides, working out, enjoying music, or getting lost in a good book.

Contact Us