Our partner Piyush recently published an article on emerging opportunity at the cross-section of payments and credit, specifically in the context of UPI. He envisions a world where Credit on UPI becomes ubiquitous describing it as a "UPI Now, Pay Later." phenomenon.

The next paradigm in consumer credit and a critique of ‘Neo Banks’

I hold one fintech belief very closely: the scale and innovation lie in Payments, and the deep profit pools lie in credit. This does not mean that payment businesses are any worse off — value creation in these businesses works entirely differently. What is important to note, though, is that the aggregate value creation opportunity in credit is several times larger than in payments. There is a corollary to this as well — the aggregate value destruction opportunity in badly-run credit businesses is potentially as large as the value creation opportunity, but we will leave the obituary writing for another day.

The central tenet of this blog is that there is an emerging opportunity — probably for the first time at scale in India — at the cross-section of payments and credit. This will have a lasting impact on the world of consumer payments and consumer credit as we know it. I break down this thesis into 7 episodes, starting with some context setting.

Context and Perspective on Consumer Payments

There is one well-established truth about Payments in India: Unified Payment Interface (UPI) is a behemoth. It has revolutionized digital payments in India, and as a modern money movement network, UPI is way ahead of its global peers, it achieved a phenomenal milestone of 10 billion transactions in August 2023. The greatest success of UPI lies in its design — it’s a free public good. I am a good old capitalist, but I believe utilities and public goods need to be regulated and need strong price controls, as they tend to end up becoming monopolistic. In the modern world, there is no more important public good than the money movement network, and the rest of the world seems primitive without a network like UPI. However, what do I know — Visa is almost a US$ 500B payment network and all I can do is write blogs!

Being a public utility allows UPI to have a unique business model. It’s free, and it’s transparently free because it’s instantaneous. I believe this business model ensures universal acceptance among merchants, which has been the single most important point of success for UPI.

Here is a sidebar: Indian merchants don’t like to pay a discount rate for accepting payments. It’s not that they cannot afford an merchant discount rate (MDR); they can, there is a deep-seated irritability with parting one’s money as MDR.

I believe UPI would become less ubiquitous if there were an MDR associated with UPI transactions.

Now with this preface, the first thing I attempt in this blog is to envision a world where Credit on UPI becomes ubiquitous. You know, UPI Now, Pay Later. What would this world look like? Is there room for innovation and value creation? Is this the next big wave in consumer credit or is it just a fad?

Boom and Bust Cycles in Consumer Credit

To continue reading the article, click here.

Piyush penned another article " Vertical SaaS in 2023: Generative AI and More" earlier - read here.

Edited by: Elise Tan

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