Google Pay Enters Lending Business In India

Google Pay, the payments application from Alphabet Inc., will begin lending operations in India in partnership with regulated lenders.

At the Google for India event in Delhi on Thursday, the company said that it will introduce five new credit initiatives:

• Linking Rupay credit card with the UPI app and credit line on UPI in partnership with HDFC Bank Ltd. and ICICI Bank Ltd.

• Personal loans with Axis Bank Ltd. and DMI Finance Ltd.

• Merchant financing via DMI Finance, ICICI Bank and Indifi to be launched.

• Sachet loans to be launched in partnership with DMI Finance, starting from Rs 15,000.

• Merchant credit line in partnership with ePay Later.

In September last year, the Reserve Bank of India allowed liking Rupay credit cards with the unified payments interface. This was widely seen as a way to boost for low-value credit usage through the UPI network. While initial pickup was slow, more banks are now offering such linkages with their credit cards.

Last month at the Global Fintech Fest, RBI Governor Shaktikanta Das announced the launch of credit line on UPI. This will help banks and other lenders to offer credit lines on UPI accounts, which customers can draw on for their purchases.

Google Pay is the second largest UPI app in India after PhonePe. In September, Google Pay accounted for 378 crore UPI transactions worth Rs 5.41 lakh crore.

Loans aimed at smaller merchants will aid Google to enter India's merchant financing market. Currently, large payment firms like Paytm and BharatPe are already offering such services to merchants, while also providing them with digital payment acceptance infrastructure.

Personal loans and credit cards have been driving the pace of retail credit growth over the last few years as banks bet on India's consumption story. As of August, unsecured personal loans extended by banks rose 26% year-on-year to Rs 12.2 lakh crore, while credit card loans rose 30% from last year to Rs 2.18 lakh crore.

Google Pay's tie-up with lenders to offer personal loans will further push accessibility to these loans even as the central bank has flagged concerns.

At the monetary policy announcement on Oct. 6, the RBI Governor highlighted that the regulator was closely watching the unsecured loan space.

"Certain components of personal loans are, however, recording very high growth," he said. "These are being closely monitored by the Reserve Bank for any signs of incipient stress."

While most lenders have reported stable asset quality in the unsecured business so far, the RBI said there was a need for tighter underwriting standards.

"Banks and NBFCs would be well advised to strengthen their internal surveillance mechanisms, address the build-up of risks, if any, and institute suitable safeguards in their own interest," Das said. "The need of the hour is robust risk management and stronger underwriting standards."