India Takes UPI Global, Aiming To Disrupt The Cross-Border Payments Market
The National Payments Corporation of India (NPCI) International has embarked on a journey to take India”s Unified Payments Interface (UPI) global. This move signifies a significant shift in the realm of digital payments, with UPI emerging as a potential peer-to-global payment network. While UPI has firmly established itself as the dominant payment system in India, its expansion into international markets presents both challenges and opportunities.
The expansion of UPI on the global stage is exemplified by its recent partnership with Singapore”s PayNow, enabling Indian tourists to make seamless UPI payments for various services abroad. UPI”s foray into countries like Bhutan and Nepal is not only influenced by their economic ties with India but also by the growing recognition of UPI as a global contender in the payment network landscape.
Currently, global payment networks fall into three categories: Visa and Mastercard, dominant in North America and Europe; China”s Alipay and WeChat Pay, operating in a closed-loop system; and now, UPI. This shift reflects the growing recognition of UPI”s prowess and potential.
The Reserve Bank of India predicts that UPI will capture 90% of the retail digital transactions volume within the next five years, a testament to its dominance. In June 2023, UPI witnessed a 59.2% YoY growth in volume and a 45.5% YoY increase in value, and this trend continues to rise. With increasing interest from Western countries, including Japan, the internationalisation of UPI is now a work in progress.
UPI”s versatility is showcased in its expanding use cases, from deploying RuPay and UPI for international payments to enabling credit for Indian customers via UPI. Merchants favor UPI for its cost-effectiveness, with QR codes being a more affordable payment option than traditional point of sale (POS) machines.
However, taking UPI global presents a unique set of challenges for NPCI International. Building interoperability with India is a key focus, enabling Indian travelers to use their UPI apps seamlessly in international markets. The second phase involves helping other countries establish UPI-like ecosystems, working closely with central banks to ensure technology and business expertise are readily available.
The international UPI transaction process involves routing payments through domestic payment pipes in partner countries, facilitating cost-effective remittances for the Indian diaspora. In 2021-22, India received $89 billion from overseas remittances, highlighting the substantial market opportunity.
Despite the promising prospects, there are hurdles to overcome. UPI”s adoption outside India has been slower than anticipated, with challenges to QR infrastructure and interoperability. Marketing efforts are underway to raise awareness and promote UPI internationally.
High-value transactions may continue to rely on credit cards, and the issue of merchant discount rates abroad remains unresolved. The fee structure must strike a balance that encourages merchants to accept UPI payments while making a compelling case for banks.
UPI”s global expansion is a bold endeavour that holds immense potential. While challenges persist, including adoption rates and fee structures, UPI”s journey to becoming a global payment network is indicative of India”s prowess in the digital payments landscape. As the story unfolds, UPI can redefine international payments and offer a cost-effective alternative to traditional methods.
