- The short version — what changes and for whom
- How credit on UPI actually flows (issuer ↔ PSP ↔ merchant)
- Unit economics: MDR, interchange, rewards, risk
- Risk controls without breaking UX
- What to watch over the next 12 months
The short
- Merchants get a bigger basket and better conversion; MDR exists but can be priced to ROI.
- Issuers gain new spend corridors and richer data; underwriting must be “session-aware”.
- PSPs / Apps win on engagement, lose if dispute ops aren’t tight.
- Consumers see card-like rewards with UPI familiarity; misuse controls matter.
What “credit on UPI” covers
1) RuPay credit card on UPI
Card credentials are tokenised into UPI; merchant sees a UPI collect/pay, issuer settles as card credit.
2) Pre-sanctioned credit lines
Bank/NBFC extends a revolving line mapped to a UPI handle. Feels like pay-later, settles like credit.
3) Merchant-tied EMIs
Higher-ticket purchases split into instalments at checkout; MDR includes subvention where applicable.
Flow & roles
Issuer owns underwriting, line management, rewards. PSP/App owns UX, risk prompts, dispute intake. Merchant owns KYC discipline, refund SLAs, and reconciliation hygiene.
Golden rule: authorise fast, settle clean. Ops debt compounds quickly in disputes and refunds.
Unit economics (stylised)
| Stakeholder | Money Out | Money In | Comment |
|---|---|---|---|
| Merchant | MDR 0.3–1.0% | Higher AOV, conversion, potential offers | For low-margin SKUs, pair with minimum bill value |
| Issuer | Rewards, funding cost, losses | Interchange, interest/EMI, data | Session-aware risk cuts loss-rate tails |
| PSP/App | Incentives, support costs | MDR share, engagement, cross-sell | Dispute tooling is moat |
For issuers, the hinge is loss rate. When loss < interchange + interest – rewards – ops, the model scales. Rewards should track lifetime value, not headline rates.
Risk controls that don’t trash UX
- Contextual limits: Lower per-txn limits for new devices, new merchants, or odd hours.
- In-session re-KYC: Step-up only when risk spikes (geo-mismatch, device change, SIM swap).
- Merchant hygiene: MCC whitelists, refund-policy checks, settlement holdbacks for fresh merchants.
- Abuse controls: Velocity checks, chargeback heatmaps, dynamic 2FA with fallback rails.
Playbooks
For Banks/NBFCs
- Spin up session-aware risk scoring (device, geo, merchant, ticket size).
- Tune rewards to preferred corridors (grocery, fuel, billpay) not flat rates.
- Instrument disputes for T+0 intake; automate provisional credits.
For Merchants
- Offer credit only where uplift beats MDR. Track AOV and refund friction.
- Surface EMI on product pages; keep refund SLAs crisp.
- Monitor issuer/PSP reliability; switch off noisy corridors quickly.
What to watch
- Interchange/MDR evolution as volumes scale
- Risk-ops: fraud rings and app-to-app exploits
- Consumer controls: per-merchant caps and “cool-off” windows
- Cross-sell: how issuers turn UPI credit traffic into deposits and loans