A credit line on UPI is borrowed money that you spend by scanning a UPI QR code, in the same way you pay from your bank account. A credit line is a fixed amount that a lender allows you to borrow whenever you need it, up to a limit. You pay interest only on what you use.
Until 2022, UPI could move money only from a bank account, such as a savings, current or overdraft account, or from a prepaid wallet. Then RBI allowed RuPay credit cards to be linked to UPI, and NPCI, which runs UPI, built the link. In 2023, RBI also allowed banks to offer pre-approved credit lines on UPI. So now a person can link a credit card or a credit line to a UPI payment app, next to their bank account.
Imagine a student in Pune with a credit line of ₹10,000 from her bank. At a canteen, she scans the shop's UPI QR code to pay ₹120 for lunch. In her UPI app, she chooses the credit line instead of her savings account and enters her UPI PIN. The bank approves the payment against her credit limit. The shop receives ₹120, as with any UPI payment. The student now owes the bank ₹120, and she has ₹9,880 of credit left. At the end of the month, she receives a bill, and she can repay it in full or pay interest on the rest.
Why does this matter in India? Far more Indians use UPI than own a credit card, and almost every shop has a UPI QR code but few small shops have a card machine. Credit on UPI lets borrowed money be spent wherever UPI works.
To offer it, a lender first decides each person's limit with a credit decision engine, often using their credit score. It then needs software to run the credit account: to record each payment, calculate interest and send the monthly bill. A card issuing platform often does this job, even when there is no plastic card.
Compare this with buy now, pay later. BNPL offers credit at one online checkout, for one purchase. A credit line on UPI works at any shop that accepts UPI.