India’s UPI System: A Global Model for Financial Inclusion and Credit Access

New Delhi, December 7, 2024 — India’s pioneering Unified Payments Interface (UPI) is being hailed as a successful model for financial inclusion, with potential for replication in other countries, according to a new research paper. Authored by experts Shashwat Alok, Pulak Ghosh, Nirupama Kulkarni, and Manju Puri, the 67-page report titled Open Banking and Digital Payments: Implications for Credit Access explores how India’s UPI system has bridged the gap for underserved groups, including subprime and new-to-credit borrowers, and fostered equitable economic growth.

Since its launch in 2016, UPI has transformed the digital payments landscape in India, connecting over 300 million individuals and 50 million merchants to a seamless and efficient transaction platform. By October 2023, UPI was responsible for 75% of all retail digital payments in the country. The paper notes that the affordability and widespread adoption of digital technology have played a crucial role in UPI’s success, ensuring its reach from urban centers to rural areas.

One of the key insights from the research is the correlation between increased UPI adoption and the rise in access to formal credit. In regions with high UPI usage, loans to new-to-credit borrowers grew by 4%, while subprime borrowers saw an 8% increase in loan access. The study highlights that UPI’s role in facilitating digital financial histories has empowered lenders to make more informed decisions, thus expanding credit to underserved populations.

The paper also reveals that between 2015 and 2019, fintech loans to subprime borrowers increased to match the growth seen in traditional banking. In areas where UPI adoption was high, fintechs thrived, with the credit market expanding without a corresponding rise in default rates. This suggests that UPI-enabled transaction data allowed lenders to manage risks effectively while broadening their customer base.

A key takeaway from the paper is that the benefits of UPI’s success are not confined to India. As the system continues to evolve, the Indian government has emphasized the importance of making UPI a global tool for financial inclusion. The report advocates for other nations to explore UPI’s open banking policies and public digital infrastructure to reduce financial exclusion, drive innovation, and promote equitable economic development.

In conclusion, the success of UPI offers a replicable model for countries worldwide looking to advance financial inclusion and improve access to credit for underserved populations. The paper underscores how India’s digital payments ecosystem has not only revolutionized financial services within the country but also holds the potential to shape global financial landscapes in the future.