On September 4, 2023, the Reserve Bank of India broadened the reach of UPI payments by allowing transactions to be conducted using pre-approved credit lines from banks. Previously, UPI transactions were only possible when your bank account or UPI wallet held enough money. However, you can now initiate UPI payments even if your account balance is insufficient. 

“Under this facility, payments through a pre-sanctioned credit line issued by a Scheduled Commercial Bank to individuals, with prior consent of the individual customer, are enabled for transactions using the UPI System”, the RBI statement said.

What is UPI Pay Later?

UPI Pay Later is a convenient functionality enabling users to utilize pre-approved credit for expenses, with the option to settle the dues through UPI transactions at a later time. Currently, HDFC Bank offers it as "HDFC UPI Now Pay Later," and ICICI Bank provides "ICICI Pay Later." This feature seamlessly operates within popular apps such as Google Pay, Paytm, and PhonePe.

In this setup, customers are given a predefined credit limit after their consent is obtained. Once approved, they can use the UPI app to make payments even if their bank balance is insufficient. Later on, they can repay the bank, much like how you settle a credit card bill. The interest charges, if they apply, can differ between banks. Some banks charge interest based on the number of days it takes to repay the credit, while others provide an interest-free grace period of 45 days, akin to a "buy now, pay later" program.

“Banks may, as per their Board approved policy, stipulate terms and conditions of use of such credit lines. The terms may include, among other items, credit limit, period of credit, rate of interest, etc”, the central bank added.

How does it work?

Upon receiving the user's approval, the bank establishes a credit line, complete with a predetermined spending limit. Users are free to utilize this credit and are responsible for repaying the balance within the specified timeframe.

Banks providing this service 

HDFC Bank has launched its 'UPI Now Pay Later' initiative, exclusively available to HDFC Bank account holders. This offering is accessible through various UPI apps. Users are granted a credit limit of up to Rs.50,000, with a maximum repayment window spanning up to 6 months, as per the bank's official website. ICICI's Pay Later service empowers users with swift access to up to 45 days of digital credit, allowing them to settle bills, shop online, and make instant payments to any merchant via UPI ID. As stated on the bank's official website, customers are subject to a one-time activation fee of Rs. 500 plus GST. Additionally, a service charge of Rs. 75, along with applicable taxes, is imposed for every Rs. 3,000 spent monthly from the ICICI Bank PayLater account. 

The Unified Payments Interface (UPI) has seamlessly integrated into our everyday financial activities. By harnessing the power of internet banking and connecting it to our UPI accounts, we can effortlessly execute payments within mere seconds. A number of individuals and businesses have adopted UPI payments, primarily drawn by its streamlined and user-friendly transaction process.