Why credit on UPI could be India’s most important financial product

By Mehul Mistry, SVP Customer Success, Strategy & Growth, Zeta

India has spent a decade building the world’s most sophisticated payments rail. UPI today processes over 20 billion transactions monthly, connects 500 million consumers, and accounts for nearly half of all real-time payments on the planet. But one gap remains stubbornly unresolved. Over 700 million financially active Indians remain either dormant in the credit system or entirely outside it, not for lack of intent or capacity, but for lack of a product designed to serve them. Solving this is not just a commercial opportunity for banks. It is the logical next chapter of India’s financial inclusion story.

The Credit Gap Is Not a Demand Problem
India’s banked population is approaching 900 million. But look closer and it tells a more complicated story.

Of the 420 million Indians who have some form of credit history, only 55 million hold a credit card today. Another 365 million have borrowed before, repaid on time, and still can’t access one. The bank knows them, has their data and their repayment record but It just doesn’t have a product that fits them. Then there are the 480 million who have never accessed formal credit at all. No bureau file, history or entry point.

Together, that’s over 700 million people, not credit-averse, not financially illiterate, simply caught on the wrong side of a system that wasn’t designed for them.

The catch-22 is well known but worth stating plainly: you need a credit history to get a credit card, but a credit card is the most effective way to build one. In the US, a 28-year-old typically has a decade of credit history behind them. In India, 28 is when most people get their first credit card. That lost decade isn’t just lost time, it is lost financial identity.

Why Existing Credit Pathways Fall Short 
Of all financial products, only two genuinely anchor a customer’s relationship with a bank – the savings account and the credit card. A gold loan gets repaid and disappears. A consumer durable EMI ends and leaves no trace. A credit card is revolving, recurring, and relational. Every statement, every payment, every limit increase is a touchpoint, and the foundation from which every cross-sell follows.

When a bank misses a customer’s first credit experience, it doesn’t lose a transaction. It loses the relationship. And yet only 4% of new-to-credit originations in India are credit cards, the lowest of any product category. The product best positioned to anchor long-term customer relationships is the one banks are least likely to offer first.

Why Now Is Different
Five years ago, this problem was hard to solve at scale. Today, India has the building blocks in place.
UPI connects 500 million consumers and over 50 million merchants. The Account Aggregator framework enables consent-based financial data sharing. The Unified Lending Interface is standardising how lenders access borrower data across institutions.

But the most underappreciated shift is what UPI has become beyond payments, a behavioural financial record of extraordinary richness. The ₹10 chai transaction. The monthly rent transfer. The merchant’s daily settlement pattern. These signals can tell a lender far more about creditworthiness than a bureau score built on products a customer was never given access to. Cash flow-based underwriting at this scale was never possible before. Now it is.

Credit on UPI Should Become an Entry Point to Credit
Credit on UPI is best understood not as a standalone product but as a new entry point into formal credit, one that meets customers where they already are. A pre-approved credit line, available at the moment of a UPI transaction. No separate application. No branch visit. Credit at the point of intent, on infrastructure the customer already uses daily.

For the credit-invisible, this is their first formal financial relationship. For the already-banked, it is credit without friction at exactly the right moment. Banks can deepen this further through merchant and platform partnerships, embedding credit precisely where purchase intent is highest.

Solving the Underwriting Challenge

The legitimate concern about extending credit to thin-file or no-file customers is underwriting risk.

Three models address this directly.

Secured underwriting backed by existing deposits, behavioural underwriting drawn from UPI transaction patterns and salary credits, and bureau-plus-surrogate underwriting that supplements thin files with utility payments, GST records, and consented data. None of these replace traditional underwriting. They rather extend its reach enabling lenders to evaluate customers who would otherwise remain outside the formal credit system.

Repayment runs on UPI mandates, the same rail that enables the transaction automates the recovery.

What Banks Stand to Gain
Today, when a new-to-credit customer seeks credit, many banks cannot underwrite them. The customer turns to a fintech or NBFC, and the bank loses visibility at the most formative stage of that customer’s financial life. Credit on UPI changes that. A small credit line builds bureau history. Within months, the customer becomes eligible for a credit card, a personal loan, and a higher limit. The relationship deepens on the bank’s own infrastructure, not someone else’s.

The graduation model has global proof. Chime in the US and Pillar in the UK have moved millions from credit-invisible to mainstream products.

The payments rail is built, the data architecture is in place, and the regulatory framework is clear. Credit on UPI is not a speculative product, it is the logical next step on infrastructure that already exists, for a market that has been underserved for too long. The institutions that act on that reality first will not just gain customers. They will shape what Indian credit looks like for the next decade.