ICICI Bank has launched an EMI facility for UPI payments under its ICICI PayLater product. With this, you can scan a UPI QR code from the UPI app and purchase using an instant EMI facility. So, you purchase an item worth Rs 15,000 and instantly convert this into 3 EMIs of say Rs 5,200 each. While EMI based credit has its own set of issues, EMIs do increase affordability. It can also help attract new customers to the bank.
Who Can Use This EMI Facility for UPI Payments?
- You must subscribe to ICICI PayLater facility. It is a UPI based Buy Now, Pay Later (BNPL) facility launched by the bank a few years back.
- The transaction amount must be greater than Rs 10,000.
- Can use this feature only for merchant UPI payments and not P2P payments.
- As per the bank press release, this feature shall soon be extended to online transactions too.
If you have the ICICI PayLater account, you will get an option to make full payment or in EMIs of 3, 6, or 9 months.
This comes soon only a few days after the RBI widened the scope of UPI transactions from savings/current account and prepaid instruments to include pre-sanctioned credit lines. It is as if the bank was waiting for the RBI communication.
How Does the EMI Facility with ICICI PayLater Work?
You must scan the QR code using iMobile (ICICI Bank mobile app) and the transaction amount must exceed Rs 10,000.
If these conditions are met (there may be other conditions that I am not aware of) you will get the option to make the payment in 3, 6, or 9 EMIs. Just like instant EMIs or Merchant EMIs on credit cards. This will not be interest-free credit. You will have to pay interest on these EMIs. Hence, there is cost involved.
You must scan the code and make payment using the iMobile app if you want the instant EMI facility. Note that the EMI feature will not work with Paytm, PhonePe, GPay, or any other UPI app. This is also a way to push customers to use the UPI App of the bank.
As I understand, you could use the PayLater facility only at select merchants earlier. This was because the BNPL facility had an interest-free credit period of up to 45 days. In such cases, the cost of credit must be funded by the merchant/brand. The UPI payments do not have Merchant discount rate (MDR) like credit cards do. Hence, I believe the bank would have struck tie-ups with merchants for in-built discounts or commission. This would have helped fund the cost of credit.
In this new EMI facility, since the customer is bearing the interest cost, I believe the facility can be used more extensively and not just at select (partner) merchants.
What Shall Be the Charges of This Facility?
Apart from interest cost, there can be charges for availing merchant EMI facility for UPI payments. For instance, ICICI Bank charges Rs 199 + GST for availing merchant EMI facility on credit card payments. It is possible that this charge is extended for EMI facility for UPI payments too. There could be a fee for subscription to PayLater facility too.
Do not expect this to be a low-cost loan. I would expect the interest rate to be in the range of 12-16% p.a. However, as we have discussed earlier in many posts, the fixed charges such as the processing fee can shoot up the cost of your loan. And that is why many banks have started charging processing fees on the instant EMI facility.
And yes, if you do not make payments on time, there will be usual penal charges. You do not want to be in that situation.
You need to be careful and responsible with credit, whether it comes through a loan, credit card or UPI.
The Reserve Bank of India seems keen to develop an alternative to credit cards. And the central bank wants to do it on UPI rails. And rightly so. You don’t want to be overly dependent on global players like Visa and Mastercard for your payments system. Remember Visa and Mastercard don’t just power your credit cards but your debit cards too.
Credit cards are widely acceptable and provide easy and quick credit. UPI payments have grown exponentially over the past many years. However, you could make UPI payments only from your bank account. Not on credit. Gradually, this is changing. First, RBI allowed Rupay cards to be linked to UPI. Rupay is a home-grown payment network managed by NPCI. Now, with RBI permitting UPI linkage to pre-sanctioned credit lines, the banks can easily offer BNPL and EMI products on UPI.
Expect a lot of innovation in this space. Expect more banks and fintech companies to launch similar credit products.
Disclosure: I have not used the ICICI PayLater facility. Hence, there may be gaps in my understanding.