Extremely Bullish About Digital Credit in India: Zeta’s Sivaram Kowta 

A series of announcements got us extremely excited (about India). The first was when RuPay credit cards could be linked to UPI. And then, the pivotal announcement of credit lines that can also be linked to UPI. 

With that, we fundamentally have an extremely bullish view on what will happen to credit in India. We think that the landscape of credit will undergo a paradigm shift. And, basically, we are taking hold of a very underpenetrated credit market with the most deeply penetrated payments channel (UPI). So, two very different complementary products and a channel are coming together.

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We believe that digital credit is going to be the way that India is going to consume credit in the future and a lot of fundamentals about loans and credit are also going to change. 

Credit line will change the way you take a loan. For instance, under a credit line, the bank will give you Rs 2 lakh that you wanted as a personal loan, but it will also give you an additional line for Rs 8 lakh. But there's no cost to you. It's not like you're taking a loan here and are required to pay interest. 

However, from that point, the bank has an active relationship with you because there's a line that is active. You may not have used the line. But anytime you're making any payment anywhere via any UPI, the line is available. You can draw it with no other paperwork, versus as in the personal loan, where the banks must underwrite the additional loan again, because all your information has expired and there's no active relationship. 

From here on, the way banks source loans will be different. They are going to, at some point in the future, ensure they have active lines with every customer. Because, once a customer has a line, instead of having to push loans, it allows the customer to pull the loan using the credit line as and when they require. 

A credit line protocol will also allow banks to have pricing per transaction. Meaning, a bank can charge customers seeking durable loans and personal loans using credit line at different rates. 

So, we feel credit line on UPI is not a product. It is the biggest distribution channel through which all the credit products can be pushed.  

Yes, banks are taking it a bit slow. They are all waiting for more clarity. Revenue models need to evolve for banks. But this need not be an overnight success. The fundamentals are strong enough about what is going to change. So, they are going about it in an experimental mode. 

Banks have three systems: a credit card management system (CCMS), core banking system – that manages savings and overdraft, and a loan management system (LMS). Only one of these can theoretically be connected to a UPI switch. The problem is each of these systems has multiple challenges because they were not built for UPI integration. The fact that I have a choice to link only one system eliminates the possibility of linking other systems. So, the banks are in a quandary and are still experimenting and thinking if they should get through one product and see how it goes. 

At Zeta, our platform can operate as a core banking, LMS and CCMS. Our platform will be able to deliver for each of those systems. 

On top of it, the second thing that they are grappling with is for the first time at scale a credit product and the transactional ecosystem have been married together. When you marry a transactional system with a core system, it creates a lot of issues. These systems were never designed with UPI in mind. So, we see that as a clean white space. 

From an investment perspective, they are in an experimental state. But I think as they see traction, investments will go up. They have seen the problems of not doing so. UPI shocked the banks. They didn’t expect the loads, and they got under pressure. Some of the large banks have had outages for multiple days. 

This (credit line on UPI) is a second coming. While I'm only predicting and I don't have any firm data, I really hope that they get it right this time because it is the same story repeating again. UPI credit line has come now. Should you not prepare for it? 

The protocols of credit line on UPI will require a lot of volume. For each transaction, there is expected to be 5x volume of inquiry going into the system. ‘How will the existing systems handle the load?’ These are pertinent questions they don't have answers to. 

So, all this explains why they are going slow. They are trying to figure out a lot of such fundamental answers. 

We are piloting with a very large private bank already on this. We hope to go live during the festive season to ensure they launch their credit line on UPI products. We are also engaging with 38 other banks and having rich conversations. All of them are interested in doing something, but there are problems, and they are figuring out the business case. 

We are fundamentally a deep-tech company. But we have also learnt to appreciate and internalise that banks are not about tech. They are about risk management. We have also learnt that it’s critical for anyone wanting to operate here to speak the language and be an Insider. We can transform banks only inside out. 

The challenge has been this journey itself. To gain these insights, we made many mistakes along the path, such as addressing how to position the products we built. The biggest challenge has been moving away from being a pure tech company to become a banking company.  

So, this transformation is what I think we are still on. But we have moved the needle quite a bit there.