Reimagining Credit in India’s Digital Economy

India's​‍​‌‍​‍‌​‍​‌‍​‍‌ credit ecosystem is going through a revolutionary phase in 2025, pretty much influenced by the astounding technological advances, adaptable regulations, and the never-ending stream of new ideas. The core of this transition is the idea of spreading access to credit, thus providing a greater number of people with financial services but at the same time maintaining a balance of risk in the rapidly digitalising economy of the country. This column examines how these factors combine to reshape credit for individuals and businesses in such a way that it becomes quicker, more equitable, and more future-oriented than ever before.

The Digital Credit Boom: Scale and Scope

India's economy is undergoing a digital credit revolution. Credit access is going beyond traditional bank branches and formal lenders only. However, the number of digital payment transactions and mobile banking have had an instrumental role in this regard. In FY25, credit card expenditures hit a new high of INR 21.16 lakh crore, going up by 14.5% compared to the previous year. This was largely driven by the fact that more than 111 million credit cards were in use (Research & Bfsi, 2025). Likewise, digital lending platforms experienced significant growth as loan disbursals increased by 35% over the recent period, thereby indicating the strong demand from consumers for convenient and quick access to credit (Bhakta, 2025).

The UPI, India's real-time interbank payment system, continues to be the main pillar. According to the latest data, UPI supports nearly 250-300 million users daily and processes more than 20 billion transactions every month, which makes it responsible for close to 80% of digital retail payments. What is even more interesting is that UPI has embedded credit instruments such as credit cards and Buy Now Pay Later (BNPL) products so that consumers who do not have a traditional line of credit can still obtain financing in a hassle-free manner during their everyday transactions (TOI Business Desk, 2025).

This move to include the integration in the formal credit market allows millions of people to access credit who were previously left out of the formal credit market, thus creating a more inclusive financial ecosystem. 

Technology: The Engine Driving Inclusion and Efficiency

Technological​‍​‌‍​‍‌​‍​‌‍​‍‌ advances are changing the very core of how creditworthiness is evaluated and how credit products are made available. Credit underwriting in the traditional sense, which depends on financial histories and collateral, is gradually being replaced by AI-powered models that utilise different data sources. The lenders can now calculate the credit risk more timely and in a less exclusionary manner by using digital footprints like UPI payments, utility bills, mobile usage, and e-commerce behaviour (India’s Digital Future Isn’t Defined by Credit Scores, 2025).

This transformation is also a great relief to provisions-lacking segments, in particular, freelancers, gig workers, micro-entrepreneurs, and women entrepreneurs, who are usually deprived of conventional credit histories but have good digital transaction patterns. Besides, machine learning and behavioural analytics have not only made loans possible but in fact within a few hours, thus enabling instant credit decisions through the Unified Lending Interface (ULI) framework, a project inspired by UPI to make lending and verification more effortless.

Regulation: Balancing Innovation with Safety and Transparency

Governance is a very important factor in ensuring that the delicate equilibrium between encouraging innovation and safeguarding consumers is maintained. The Reserve Bank of India (RBI) has put forth exhaustive Digital Lending Directions that require digitally conducted loans to be transparent in terms of practice, have standardised disclosures, and strict data privacy norms to create confidence in digital credit.

Also, RBI’s revised credit card regulations focus on the aspect of responsible lending by integrating features like real-time alerts, more straightforward billing statements, and giving consumers protection from predatory fees. The recent reform measures reorient the macro-prudential standards, which allow financial institutions to determine the risk level more precisely, thus availing more credit to micro, small, and medium enterprises (MSMEs) that contribute almost 40% of India’s GDP.

Innovation in Product Design and Credit Models

Besides technology and regulations, product innovations are changing the way credit is delivered. Credit is becoming more and more a part of normal payment transactions, that is, from BNPL plans to instant EMIs and small-ticket micro-loans.

By expanding UPI to cover "EMI payments" and credit card integration, consumers get the instant and seamless credit facilities within the payment apps. Pre-approved lines of credit (CLUPI) are the ones that offer users an immediate credit limit, which is easily reachable at the point of sale, thus creating a win-win situation for small merchants and consumers in reducing the barrier to entry (Talukdar, 2025).

On the other hand, innovation also serves as a tool for sustainable credit use. The level of financial literacy is going up hand in hand with the system, and the fraud prevention that has been improved by using alternative data is one of the many ways through which the risks of over-indebtedness and credit fraud are lessened​‍​‌‍​‍‌​‍​‌.

Impact on Consumers and MSMEs: New Opportunities and Challenges

Consumers​‍​‌‍​‍‌​‍​‌‍​‍‌ and MSMEs gain real benefits from India's digital credit transformation that has led to a more accessible credit. Credit facilitation leads to income growth, business expansion, and overall improvement in the standard of living. MSMEs, specifically, utilise digital credit to meet their needs for working capital, machinery investments, and new market entry, thus becoming the main drivers of entrepreneurship and job creation.

For instance, people without fixed formal incomes can get access to credit, which till now could have been a barrier— farmers, gig workers, and women entrepreneurs are enabled to get financing based on their digital transaction behaviour rather than conventional credit scores. Furthermore, digital identity constructs such as Aadhaar and Jan Dhan accounts have become facilitators of inclusion.

Still, there are issues such as the concern for data privacy, the digital literacy gap, and the risk of incurring unsustainable debt, which, however, can be resolved only by regulatory vigilance and consumer education aimed at maintaining trust and a healthy credit ​‍​‌‍​‍‌​‍​‌‍​‍‌uptake.

Current Trends and Future Outlook

Key trends that are changing the face of credit in India in the near future include:

• The credit card usage has been rapidly expanded mainly due to the reward programmes, which are very common and easy to use in everyday life; consequently, the payment by debit cards is being replaced by credit ones.

• The skyrocketing fintech investments are a clear indication of the growing trust in the Indian credit innovation ecosystem—private credit markets attracted $9 billion in H1 2025.

• The growing reliance on alternative data and AI-driven credit scoring facilitates the identification of the right borrowers and also the detection of fraud cases.

• The regulatory reforms targeting transparency and risk-sensitive pricing go hand in hand with the creation of a stable and inviting credit market.

India’s credit system is expected to gradually integrate more with digital public infrastructure, making the credit system not only more streamlined, transparent, and accessible to a large number of people—this is a key factor to both the realisation of the $1 trillion digital economy target and the guarantee that no credible borrower will be left out.