It is no exaggeration to say that India’s United Payments Interface (UPI) real-time payments system has been a game changer for the subcontinent. In a nutshell, UPI has transformed how Indians make payments, allowing them for the first time to easily transfer money instantly from one bank account to another: from a customer to a business, or between individuals.
In the roughly seven years since it was launched, UPI has accrued 260 million users in a population of 1.4 billion and been a decisive factor in India’s embrace of cashless payments thanks to its ease of use and interoperability. Mastercard’s 2022 New Payments Index found that Indians are the most willing of any consumers in the Asia-Pacific region to use emerging cashless payment methods with 93% likely to have made such a payment in the past year.
While many fintech success stories have come entirely from the private sector, state-backed UPI shows that public-private digital financial inclusion efforts can bear fruit when they are implemented well. Having achieved dominance at home, UPI now has set its sights on global expansion.
The question is: Can what works for digital payments in India work globally?
Focus on remittances
The biggest selling point for UPI internationally is that it could both accelerate and reduce the cost of cross-border transactions to and from India, the world’s top remittances market. According to the World Bank, India’s remittances exceeded US$100 billion in 2022, the most of any nation in the world and significantly ahead of No. 2 China and No. 3 Mexico.
For UPI to tap into this market, India must work out agreements with the countries from which Indian diaspora send the most money home. The United Arab Emirates is No. 2 on this list after the United States, and a breakthrough may be in the works. The two countries discussed allowing cross-border remittances via UPI during a meeting between Indian External Affairs Minister S. Jaishankar and UAE
UAE
Foreign Minister Sheikh Abdullah bin Zayed Al Nahyan in New Delhi last November.
Though India has signed a deal with the UAE’s Mashreq Bank that enables Indian travelers to the country pay for their purchases on UPI, that is small potatoes compared to the remittances market. The UAE accounts for up to 18% of India’s inward remittances, which means US$18 billion.
Singapore is also an important remittances market for India though much smaller than the UAE. In late February, UPI hit another important milestone: India linked UPI with Singapore’s PayNow real-time payment system, a move that could ultimately disrupt the more than US$1 billion in annual cross-border flows between the two nations.
SWIFT challenger?
It is possible that UPI’s benefactor the National Payments Corporation of India (NPCI) aims to establish a homegrown alternative to SWIFT: less expensive payment flows between India and the world on the country’s own digital payment rails.
Normally, it costs Indians $13 to send $200 back home. There is no transaction fee for using UPI though. No wonder NPCI International Payments CEO Ritesh Shukla believes that “the remittances market is ripe for disruption.”
That so many key players in India’s financial services sector are part of UPI’s network would augur well for such an endeavor. About 330 banks and 25 apps use UPI, including all the key third-party payment providers like Google
GOOG
Pay, PhonePe and Paytm.
The NPCI also seems interested in building a SWIFT alternative at least partially for geopolitical reasons. It is true that there is a demand in this respect for alternative cross-border payment rails, but whether India can or wants to be the country that leads such an initiative is uncertain.
Measures of success
One way to measure the success of UPI’s international expansion efforts will be by the scope of its network. The lowest-hanging fruit will be gaining support for UPI international payments so that Indians overseas can pay for goods and services with the platform. In this regard, UPI is already present in some form in the UAE, Singapore, Mauritius, Nepal, Bhutan, France and the United Kingdom. Looking ahead, it will be important for UPI to enter the United States, Thailand, Indonesia, Malaysia, Switzerland and Australia – all countries favored by Indian travelers.
Another key measure of UPI’s success overseas will be merchant adoption levels. One way to accelerate merchant adoption would be to partner with local payments processors or aggregators that can help extend support for the Indian payment rail in their respective countries.
An important case study for UPI’s global expansion is Nepal as it could show the feasibility of replicating the platform’s success in India from the ground up in a foreign market. NPCI has positioned expansion into Nepal as a milestone in UPI’s international expansion given that UPI will function for Nepali users like it does for Indians in India.
“Nepal shall be the first country outside of India to adopt UPI as the payments platform driving the digitalization of cash transactions,” the NPCI said in February 2022.
If UPI thrives in Nepal, that could open the door for the system to expand in a similar manner in neighboring countries such as Bhutan and Bangladesh that have close ties with India and are steadily embracing digital financial services. While the population of Bhutan is small at 777,000, Bangladesh represents a significant market opportunity with its population of 169 million.
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