PhonePe has rolled out a new credit product aimed at small merchants and kirana store owners across India. The UPI-linked credit line offers instant access to working capital of up to ₹5 lakh, with repayments automatically deducted from daily UPI collections.

The fintech giant, which processes over 6 billion UPI transactions monthly, is leveraging its merchant transaction data to underwrite loans without requiring traditional credit scores or collateral. The product is being launched in partnership with three NBFC partners.

“India has over 80 million small merchants, and most of them have zero access to formal credit,” said PhonePe’s Head of Financial Services, Hemant Gala. “We can see their daily revenue flow in real time, which makes us uniquely positioned to extend credit responsibly.”

The interest rates range from 1.2% to 2.5% per month, depending on the merchant’s transaction history and repayment patterns. Early pilot data from Maharashtra and Karnataka showed a default rate of under 2%.

This move puts PhonePe in direct competition with PayTM’s merchant lending business and BharatPe’s postpe credit line. The embedded finance market in India is projected to reach $25 billion by 2028, according to a recent RedSeer report.