Introduction
Imagine a world where global payments and transfers could be as easy as sending texts on WhatsApp. Unified Payments Interface (UPI) will soon make that happen somewhere in the next couple of years. Designed by the National Payments Corporation of India (NPCI), UPI was 2016 rolled out in India. It created an avenue for the handling of money through different bank accounts, enabling merchant payments and other banking functions, all under one application.
Following its successful implementation in India, the innovation was rolled out on a global scale, with seven nations accepting it at present. The successful introduction has drawn a positive response, so much so that the Reserve Bank of India (RBI) and its subsidiary-NPCI International Payments-have proposed to take the plan to cover an additional twenty countries by FY2029.
The future of revolutionized global payments is ringing with the sound of UPI. This article delves into the current scenario of the UPI system internationally, the untapped potential it holds, and what the future prospects look like for India and other nations.
Background and Development of UPI
National Payments Corporation of India (NPCI), which developed Unified Payments Interface (UPI), was set up to facilitate transactions between banks across India. However, a report released by the RBI in year 2011 still rated 145 million families of India to be out of reach from formal banking.
Also, black money was being hoarded in cash, and illegitimate transactions in small amounts were troublesome for the government. The government had plans for a cashless and digital economy.
The prime aim was to create a payment system that allows users to link multiple bank accounts at one place or application, and make their transaction process smoother.. Backed by this thought, the RBI established a working group in 2012 to study the feasibility of such a system. It was not until 2015 that the NPCI started working on the UPI system and launched the service in April 2016. The newer system of payments was quick and centralized, and this whole exercise changed the Indian landscape, ushering in a secure mode to conduct financial transactions.
The popularity and surge in the usage of the system can be assessed by looking at the following figure.
UPI journey in India with YoY (Year-on-Year) growth statistics till January 2023 | source: https://www.nic.in/blogs/digital-payments-driving-the-growth-of-digital-economy/
The above graph displays the staggering year-on-year growth of transactions routed through UPI, in terms of volume.
A recent milestone achieved was crossing the 100 billion mark of total transactions, as reported by the National Payments Corporation of India (NPCI). This also means a soaring 42% growth annually in terms of transaction value, as well as a 54% year-on-year growth in volume.
These data points reflect the incredible journey UPI has undertaken to transform the financial payments arena in India. But this is only one part of the larger shift toward smoother global linkages in terms of payments and transactions. The following sections discuss how the shift is unfolding and what the future holds for the payment system. With this in mind, NPCI International Payments Limited (NIPL) was launched as a subsidiary of NPCI.
Economic Analysis of UPI
Right from its launch, UPI has significantly influenced the Indian economy. By making digital payments available to a wider range of people, including those living in rural and semi-urban regions, UPI has transformed the payments landscape in India. This transition towards a cashless economy has improved convenience, increased transparency, and minimised the informal economy’s scale among other benefits.
The economic effect of UPI is also evident in other, more broad financial indicators. For example, the monumental rise in UPI transactions has aided GDP growth in India. It has also boosted consumer spending and enabled smoother financial operations for businesses across the board. This expansion is well-aligned with the Indian government’s aim of enhancing financial inclusion and encouraging a cashless economy.
Analyses have indicated that the decrease in transaction costs and time due to UPI has improved overall economic efficiency, benefiting both consumers and companies. Moreover, UPI has led to job creation in the financial technology sector and aided the emergence of fintech startups and related ventures. It has also resulted in job creation in sectors ranging from digital payment infrastructure to cybersecurity, tied to its core functions.
An important achievement of UPI is its promotion of financial inclusion. By lowering transaction fees and streamlining the payment system, it has improved access to financial services for marginalized groups. UPI has also integrated the unbanked and underbanked populations into the formal financial framework. This integration is especially significant in rural areas, where conventional banking facilities are typically scarce. UPI’s connection with Aadhaar, India’s biometric identification system, further contributes to financial inclusion. Aadhaar-linked UPI accounts allow individuals without formal banking ties to engage in the digital economy. This measure has been crucial; it has reached underprivileged communities and given them access to financial tools and services that were once inaccessible.
The Global Digital Payments Landscape
In an increasingly interconnected world, underscoring the intricacies and extent to which digital payments are growing globally becomes crucial.
As per 2022 data, quoted by MyGovIndia, India ranked first with a 46% share in the global real-time transactions being done. Brazil, China, Thailand, and South Korea followed suit. But before addressing details of India’s lion’s share, let’s span out the landscape of digital payment in other nations.
Brazil, positioned next to India, has a share of 15% in the global transactions. Pix, an instant payment system, is used by around 90% of Brazilians. Some similarities between Pix and UPI exist, making both efficient payment systems by eliminating the need for intermediaries. However, nuanced differences highlight that Pix is yet to add features of offline payments and additional services. A recent development launched in June 2024, called International Pix, would allow Brazilians to transact globally, and Pix Roaming for tourists coming to Brazil.
In China, around 90% of people have access to digital payment services, out of which QR-code-driven digital wallets Alipay and WeChat Pay are the two most popular choices. While these have been the driving force in cashless transformation in China, one disadvantage is the fact that these are e-wallets. This means that they act as intermediaries between bank accounts. A system like UPI, on the other hand, involves direct bank-to-bank transfers. WeChat Pay users can only transact with other users who have the app. Globally, both allow remitting money online but are restricted to Chinese users in nations like Mainland China, the Philippines, and Indonesia.
If we turn our focus to Thailand, the nation still functions majorly on cash transactions, but in the wake of COVID-19, it has turned to digital modes of payment as well. The most popular method is PromptPay, which has similar features to UPI and links payments to a Citizen ID or their phone number. Internationally, it’s currently available in Singapore. India and Thailand are also prospecting over UPI-PromptPay linkage, discussed at the Joint Trade Committee Meeting.
In South Korea, around 70% of transactions are made using debit/credit cards. The main companies in the digital payments arena are NaverPay and Kakao Pay, which are major e-wallet applications. Also, NaverPay’s partnership with Chinese AliPay made it accessible in around 10 Asian countries.
Now circling back to India, the most popular mode of digital payment is UPI, with an 80% share among the different modes of transactions. Seeing the growth of UPI in the domestic market, the global expansion of the payment system seems promising. With this in mind, NPCI International Payments Limited (NIPL) was incorporated as a subsidiary of NPCI to carry out the process of expansion in the digital payment space.
Currently, the UPI system is spread in 7 countries and holds a huge potential to take this number higher. It’s time to dive into the opportunities and feasibility of such a task at hand.
UPI’s International Expansion
The remarkable domestic achievement of UPI has prompted plans for international growth. The Indian government is actively supporting its internationalization, and is aiming for usage in up to 20 nations by 2029. This initiative is strategic and is expected to enhance financial inclusion globally and simplify cross-border transactions.
Multiple countries have expressed interest in implementing UPI. As per RBI and NPCI projections, the initial emphasis will be on countries with significant remittance inflows and emerging markets where digital payment systems are still developing. Nations in South Asia, Africa, and Southeast Asia stand out as key candidates due to their substantial diasporas and expanding economies, with some already showing interest in adopting UPI.
In South Asia, nations such as Nepal and Sri Lanka are among the first to experiment with UPI integration. Nepal chose to adopt UPI due to its strong remittance connections with India, aiming to enable smoother transactions for the Nepali workforce situated in India. Similarly, Sri Lanka’s financial sector saw UPI as a way to boost its digital payment capabilities while decreasing transaction costs for its population, advantages already witnessed in India.
Certain countries, such as Nigeria and Kenya in Africa, exhibit potential for UPI adoption. Nigeria has a growing tech industry and a high volume of international transactions; they can adopt UPI to enhance the efficiency of remittances and improve access to financial services for the underbanked demographic. Given that Kenya is recognized for its mobile money success with M-Pesa, it could adopt UPI as a complementary digital payment solution. The Southeast Asian region has rapidly developing economies, and countries like Indonesia and Vietnam have displayed interest because of their growing digital economies and notable Indian expatriate communities.
A range of partnerships and initiatives have been undertaken to support UPI internationalization, such as the MOU that Google Pay India signed with NPCI International to advance UPI globally. The RBI is also dedicated to achieving this goal, and it has instituted policy frameworks and bilateral agreements to facilitate cross-border payments.
Challenges and Opportunities for International Expansion
UPI is expanding globally. It is getting both significant opportunities and a considerable amount of challenges that need to be addressed so that there is successful international market penetration.
Challenges:
1. Regulatory and Technical Barriers:
Each country has its own financial regulations and standards. This makes the integration of UPI complex globally. While countries like the UAE and Singapore have embraced UPI, further expansion will necessitate this adjustment to this diverse and new financial system. We will have to find a way to help UPI navigate through the varying legal frameworks.
2. Security Concerns:
The global scaling of UPI heightens the risk of cyber threats. This makes it necessary to improve security measures to protect users from fraud. Since international exposure will increase, these risks will become more pronounced. This will also make it essential for UPI to adopt advanced fraud detection systems.
3. Transaction Limits:
Currently, UPI imposes limits on the transaction amounts. For larger cross-border transactions, UPI’s effectiveness becomes restrictive. Business-to-business (B2B) payments often require higher transaction thresholds. So, finding a solution to this limit becomes especially crucial.
4. Building Cross-Border Partnerships:
Collaboration and effort are required to adapt to UPI. Since there are different technical standards for various international payment systems. Partnerships with financial institutions and payment platforms in different countries will be the key determinant when it comes to UPI’s success on the international stage. We need to integrate UPI seamlessly into the local payment systems. This is a resource incentive task, and this will require multiple collaborations as well.
5, Economic Sovereignty Concerns:
Some nations may hesitate to permit a foreign-operated system when it comes to managing their domestic transactions. This is because they might fear a loss of control over their own financial infrastructure.
Opportunities:
Digital payments are growing in popularity worldwide. This gives UPI a promising landscape to be adopted globally.
1. Cost Efficiency and Convenience:
UPI removes intermediary fees, which makes the transaction cost significantly less. This makes it an appealing choice for international remittances and trade payments. It even enhances the overall user experience because it offers a near-instantaneous transaction time.
2. Financial Inclusion:
UPI can be a master solution to enhance financial inclusion in other developing countries. India is the biggest example for this, where millions of unbanked individuals were integrated into the formal banking system of our economy. This can lead to significant social and economic advantages as well. Particularly in nations with underdeveloped banking systems.
3. Transparency and Trust:
Ensuring absolute trust, dependability, and complete accountability, UPI is the framework on which all transactions can be easily tracked and verified. This, in turn, will enhance transparency and reduce the risks of corruption and fraudulent transactions in international business. This might even be the only way that could help users gain confidence and start to trust UPI-filed transactions across the globe. UPI’s multitasking and empowerment features are what make users apply to a diverse pool of demographic classes.
4. Market Expansion for Businesses:
UPI (Unified Payment Interface), for businesses, is a real-time and cost-effective payment system which makes cross-border transactions more efficient, and thus, with these new rules, it opens the ability for companies to reach new markets.
Despite the fact that UPI has not yet fully revealed its global impact, the potential of it is still visible. UPI might start off the revolution with a digital wallet if it manages to rise above the obstacles and go for strategic international growth. The success of the scheme would mainly depend on the extent to which it follows the regulations, the quality of cybersecurity it can establish, and the global interconnectedness it can create through apt partnerships. Simultaneously, the bank is expecting to bail the system with its efficiencies and cost-effectiveness.
Recommendations and Future Prospects
The future of UPI’s international potential depends on the formation of strategic partnerships, adhering to regulatory standards, and the fostering of ongoing innovation. UPI can be a prominent platform used worldwide and establish itself as a key player in the international payments arena. This will be done if there is enhanced cross-border functionality and collaborations with global networks, and if we prioritise financial inclusion. Its adaptability and scalability make it a well-suited platform for sustained growth in the coming years.
1. Expanding Cross-Border Reach:
To facilitate UPI’s growth globally, one of the main recommendations is to concentrate on bumping up their international payment solutions. The National Payments Corporation of India (NPCI) took a step in this direction by extending access to NRI users from countries like Singapore, the UAE, and the US via phone numbers not registered in India. This gives the opportunity to expand in the directions where there is a larger Indian diaspora. The mode of communication will be facilitated, thereby enabling fund transfer that costs less and is done quickly than the old, long method like SWIFT. These steps promise a worldwide user growth and a better fit into the global money system of UPI
2. Collaboration with Global Payment Networks:
UPI could take advantage of universal payment methods such as Mastercard or Visa technologies that have been present for a long time and have a firm hold on domestic markets. These networks operate all over the continents, and thus, by associating with them, they can help open up UPI to more integration channels. Furthermore, the experiences of the Brazilian PIX service, which flourished because of the government-imposed measures and the promotional activities, could guide UPI in its venture in other countries. UPI could hasten the pace of implementation in target locations by using similar tactics
3. Enhancing Security and Regulatory Compliance:
As UPI scales internationally, maintaining the robustness of its security infrastructure is critical. Addressing regulatory requirements in different regions is crucial for gaining the trust of foreign governments and financial institutions. Moreover, as UPI integrates with different banking and fintech systems, it will be essential to ensure a seamless and secure transaction experience. Strengthening data privacy protocols and fraud prevention measures will be pivotal for securing international users
4. Innovating with Credit on UPI:
Credit card payments can be done through UPI. This recent introduction has opened new opportunities for growth. Its popularity can be further increased if we expand this feature internationally, especially amongst customers who prefer credit-based transactions.
By offering incentives like cashback and reward points, UPI could attract more users and drive higher transaction volumes. Additionally, tailoring UPI’s features to meet different financial regulations and market conditions, such as varying transaction limits, will be essential for its success.
5. Capitalizing on Financial Inclusion Initiatives:
UPI has positively impacted the Indian economy by enhancing financial inclusion. This model can be used by other developing countries and can serve them as well. By providing straightforward access to digital payments, UPI could make a meaningful impact in areas with inadequate banking facilities. Nations in Africa and Southeast Asia, where mobile usage is widespread but banking access is limited, might be prime candidates for UPI’s growth. Creating localized versions of UPI that address the specific needs of these communities could greatly enhance global financial inclusion.
Conclusion
To summarise, the Unified Payments Interface (UPI) has demonstrated its capabilities to revolutionise the financial sector in India. UPI is poised to make a significant contribution globally. The global digital economy has evolving needs. These needs include simplifying transactions, facilitating financial inclusion, and reducing costs. UPI is the solution to these vacancies. There are issues and challenges, such as regulatory challenges and security concerns, which need to be addressed. Nonetheless, there are enormous growth opportunities as well.
By means of strategic alliances, increasing cross-border strengths, and continuous innovations, UPI could become an important player in cross-border payments. As more countries adopt UPI, its success will depend on maintaining its core values of efficiency, transparency, and inclusivity, while evolving to suit the particular requirements of international markets.
If these strategies are effectively implemented, UPI can redefine the future of international finance, offering a secure, convenient, and frictionless digital payment experience across borders.
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