As per the reports, the digital payment players are setting the stage for recurring payments to start on Unified Payments Interface (UPI) and doubling down on partnership with lending platforms to process their EMI payments.
How Did This Happen?
According to the sources, the payment majors like Paytm, PhonePe and Google Pay have already partnered with lending platforms like Bajaj Finance, Tata Capital, Indiabulls Consumer Finance and others to process their EMI payments.
It seems to be the starting point since eventually recurring payments will happen via UPI and these applications will be ready to process those transactions.
In January this year, the Reserve Bank of India gave a go-ahead for recurring transactions on UPI up to Rs 2000.
Further, bankers believe this will soon be expanded beyond Rs 2000, once the system stabilizes.
Why Would This Happen?
Apart from EMI payments, the apps are also looking for mutual fund transactions and partnering with fund houses to process their monthly systematic investment plans.
A senior banker said, “NPCI is working with banks to test the recurring payments system on UPI; these are still initial days but a few of the banks might start going live in the next couple of months,”.
While PhonePe said that they are working with more than 35 lenders to process their EMI payments.
Further, they have plans to add more lenders for the convenience of their consumers.
The PhonePe spokesperson said, “We currently do not support recurring payments for loan EMIs; however, this is a feature we are planning to add,”.
How Does It Work?
Currently, PhonePe requires consumers to go through a four-step process to pay their EMIs.
Firstly they will have to select EMI payments from the home screen, then select the lender, enter details about the loan account and then authenticate the transaction.
This process flow is similar in other payment apps as well.
According to the industry insiders, all payment apps want a share of the recurring payments pie, since it has multiple benefits.
Firstly, it will lock customers to a platform and increase stickiness, secondly, it will also give platforms visibility of the EMI payment habits of consumers.
Also, it will provide greater visibility on the consumer’s behavior. So far there is no response from Paytm and Google Pay for comments.
Currently, Paytm app shows more than 70 lenders for whom repayments can be done via the app. While for Google Pay, there are around 15 lenders.
So far, this process looks clumsy, the banker quoted above said that once recurring payments go live on UPI, borrowers will get a debit notification 24 hours before the debit happens and they have to just authenticate the transaction to go through.
Although, this will make EMI payments smooth.
The founder of a fintech lender which accepts payments from all the major UPI apps said, “Our experience with borrowers is that if given all the payment options and a smooth repayment experience, the chances of defaults are substantially reduced,”.