Indian Fintechs Turn From Payments to Credit as UPI Lending Expands

Sameer Nigam, founder and chief executive of Walmart-owned PhonePe, told CNBC that the credit market offers opportunities more than double the size of India's payments market. In the financial year ended in March, UPI transactions reached 314 trillion rupees ($3.2 trillion), according to the National Payments Corporation of India. PhonePe and Google Pay accounted for more than 70% of those transactions. July data showed Paytm as the third-largest UPI transaction platform, Meta's WhatsApp Pay eighth and Amazon Pay 12th.

At the festival, Tiger Global-backed BharatPe unveiled BharatPe Flex, a product that gives users a pre-approved credit line of up to 60,000 rupees for UPI payments across online and offline merchant transactions. "We see a significant opportunity to make formal credit more accessible to consumers," Nalin Negi, chief executive of BharatPe, said at the launch.

Deloitte said in a June report that only 15% of adults in India have access to formal credit, compared with a global average of 24%. More than 85% of micro, small and medium enterprises relied on what Deloitte called informal, usurious financing. But data generated from digital transactions and services is improving access to credit, with fintechs leading the push, especially in unsecured, small-sized loans.

Vipin V., managing director and partner at BCG, told CNBC that demand for small, unsecured loans is rising in India and that fintechs have cracked the model through high customer reach and convenience. He said more data is now available on customers as digital payments and services expand, helping lenders weigh the risk of lending to previously underserved borrowers. Transaction data from UPI, purchase history from e-commerce websites and geolocation data that assesses the economic profile of a customer's locality are helping fintechs conduct online due diligence for digital loans, he said.

On Tuesday, Indian Prime Minister Narendra Modi urged fintech companies at the Global Fintech Fest to increase the share of non-payment transactions with the same speed and scale they had shown in payments. He said providing access to capital and credit to micro and small enterprises would increase the country's economic activity.

Amazon Pay, which reaches millions of sellers and consumers through its e-commerce platform, sees digital lending as a large opportunity in India. It currently has more than 10 million customers in India using its pay later services. "Digital credit presents a massive fintech opportunity," Vikas Bansal, chief executive officer of Amazon Pay, told CNBC, adding that the company plans to expand friction-free consumer credit across its ecosystem.

Smaller Indian cities including Coimbatore, Surat, Nagpur, Indore, Prayagraj, Ranchi, Ghaziabad and Ludhiana were the strongest centers of digital credit adoption, according to a study released by Amazon Pay on Thursday.