India's UPI System Emerges As Leader In Cross-Border Payments
In a recent address at Harvard Law School, Jay Shambaugh, the Under Secretary of the US Treasury for International Affairs, discussed the evolution of new technologies in cross-border payments. He highlighted the role of India”s Unified Payments Interface (UPI) system, which has been proactive in establishing bilateral connections with countries like Singapore and the United Arab Emirates. Shambaugh noted that various ASEAN countries have expressed interest in interconnecting their fast payment systems on a multilateral basis.
He mentioned ongoing initiatives to modernise legacy payment systems, with financial institutions, system operators, banks, and financial market infrastructures (FMIs) investing in improvements. They highlighted the implementation of the ISO 20022 messaging standard as a significant development, offering data-rich, faster messaging, lower payment failure rates, and other advantages.
One notable aspect pointed out was that certain jurisdictions with strong economic ties are forging bilateral links between their fast payment systems. India, in particular, has been at the forefront of such efforts, connecting its Unified Payments Interface system with those of other nations, fostering closer economic relationships.
It was also discussed the G20 Payments Roadmap, emphasising the priority action area of “payment system interoperability and extension.” This initiative aims to enhance payment system connectivity and operational alignment along key corridors, enabling instant transfer and settlement of payments across different systems. Early results indicate positive outcomes from legacy system upgrades under the G20 Roadmap.
Further, he highlighted the exploration of future payment systems, including cross-border central bank digital currencies (CBDCs) and distributed ledger technology (DLT)-based payments. While acknowledging the potential for these technologies to revolutionise payment systems with features like transparency, instantaneous settlement, and programmable payments, Shambaugh noted that the actual implementation could be more complex.
He stressed that advancements in technology offer opportunities to design cross-border payment systems that combine the strengths of legacy systems with innovative features to increase efficiency and reduce risk. This sheds light on the ongoing transformations in cross-border payments, with India”s UPI system serving as a notable example of bilateral collaboration in this evolving landscape.
