From India to the World: UPI’s Transformative Role in Faster Global Payments

By Tharun Madhuru

When financial systems are undergoing a digital revolution and competing for implementing faster and more efficient payment systems, UPI’s success has grabbed the international attention of India and marked India as a leader in this Space. With countries inclining towards UPI as their preferred Instant payments space, UPI is rapidly increasing its geographical boundaries and shaping its path towards faster and unified cross-border transactions.

Its inception and rapid adoption in India showcased the potential of a simplified, real-time payment system. Yet, beyond its domestic triumphs, UPI’s influence extended far beyond India’s borders, signaling a transformative shift in the landscape of global payments. Let’s delve into UPI payment mechanics and its exponential growth story in India. UPI’s adaption at the global level to support the payments ecosystem.

An Overview of UPI in a Nutshell

UPI runs as an open-source application programming interface (API) on top of the Immediate Payment Service (IMPS). It works on a four-pillar push-pull interoperable model where there will be remitter/beneficiary front-end PSP (payment service provider) and remitter/beneficiary back-end bank that settles the monetary transaction for the users.

The success of UPI can be attributed to its straightforward design and a range of key features and advantages. Let’s explore the primary characteristics provided by UPI.

• Instant Transactions:Through the IMPS platform, NPCI achieved real-time payments for users.
• Enhanced Security:UPI ensures security by utilizing UPI IDs and restricting the sharing of users’ bank account details.
• Comprehensive Transaction Scope:UPI covers a wide array of banking activities, encompassing not only peer-to-peer transfers but also bill payments and merchant transactions.
• Economical Transactions:UPI’s simplicity results in the lowest transaction costs among all payment systems in India

UPI’s Adoption within the Domestic Sphere:

Adoption of digital payments was growing before onset of CoVID pandemic, but the steps taken by Reserve Bank for Financial digitization along with additional thrust provided by the pandemic accelerated the shift, leading to a dramatic increase in contactless and online payments. The contactless nature of the digital modes – enabled by innovative technologies and regulatory flexibility – has given crores of Indians a choice to practice social distancing while making payments. Another significant trend is the entry of small businesses into digital payments. Data shows an increase of more than 500% in merchants accepting digital modes of payments during the half-year ended September 2021 as compared to half-year ended March 2019; in case of UPI alone, there is an increase of more than 1200% over the same period. In October 2019 Crossed 1 billion transactions in a month.

Total digital payments have increased by 216% and 10% in terms of volume and value, respectively, for the month of March 2022 when compared to March 2019. On the other hand, usage of paper instruments has come down significantly during the same period, with its share in total retail payments registering a decline from 3.83% to 0.88% in terms of volume and from 19.62% to 11.47% in terms of value. Of the digital payments, UPI, IMPS and PPI transactions registered CAGR of 104%, 39% and 13% respectively.

Fintech’s boost to UPI’s success:

Over 70 fintech companies provide UPI services to the Indian populace, significantly contributing to the success story of UPI. Among them, PhonePe, Google Pay, and Paytm emerge as key participants in this sector. Collectively, these three leading entities commanded a substantial 96.83% share in transaction count and 95.35% share in transaction value, underscoring their dominant position within the UPI landscape.

Global Expansion of UPI and Its Impact on Cross- border Payments

With a vision of transforming the Unified Payments Interface (UPI) into a preferred global real-time payments partner, the National Payments Corporation of India (NPCI) and the Reserve Bank of India (RBI) embarked on an international journey. The initiative began with a pilot launch during the Singapore Fintech Festival in November 2019 and culminated in the official launch of UPI International in March 2020. Since then, UPI has achieved significant milestones, solidifying its presence on the global stage.

The expansion of UPI’s influence beyond India’s borders has been marked by strategic collaborations and partnerships, each contributing to the advancement of cross-border payments. Notable milestones include:

• Bhutan:In a collaboration with the Royal Monetary Authority of Bhutan, UPI QR code-based payments were adopted in July 2021, extending the convenience of UPI to Bhutanese transactions.
• Malaysia:A partnership with Merchantrade Asia in August 2021 enabled inward remittances to Indian beneficiary banks through UPI IDs, showcasing the interoperability and reach of UPI.
• North and South-East Asia:A pivotal collaboration with Liquid Group in September 2021 facilitated UPI QR-based payments acceptance across 10 countries, spanning North and South-East Asia. This integration underscores UPI’s potential to transcend geographical boundaries.
• Singapore:The announcement in September 2021 of a partnership between RBI and the Monetary Authority of Singapore to link UPI and PayNow, the respective fast payment systems of India and Singapore, highlights the transformative impact of UPI on real-time cross-border remittances. Witness the historic implementation here.
• UAE:UPI’s reach extended to the United Arab Emirates in April 2022, allowing real-time transactions on NEOPAY terminals. A memorandum of understanding signed in July 2023 between RBI and the Central Bank of UAE (CBUAE) further solidified UPI’s potential for cost-effective cross-border funds transfers.
• Nepal:Through collaborations with Gateway Payment Services and Manam Infotech, UPI’s footprint reached Nepal, making it the first foreign country to utilize UPI for domestic payments alongside cross-border transfers.
• France:An MoU with France’s Lyra Network enabled UPI and RuPay payments at Lyra terminals and machines, a testament to UPI’s growing acceptance on a global scale.
• UK: A partnership with PayXpert in August 2022 paved the way for UPI and RuPay acceptance in the UK, offering seamless payment solutions to a broader audience.
• Oman:The acceptance of Indian RuPay cards at OmanNet network ATMs, POS, and e-commerce sites, as well as real-time cross-border remittances between India and Oman, was established through a memorandum of understanding in October 2022.
• Europe:A collaboration with Worldline in October 2022 expanded UPI and RuPay acceptance among merchants in Europe, enhancing the reach of Indian payment methods.
• Worldwide Cross-Border Payments with TerraPay:Partnerships with TerraPay in January and September 2022 facilitated real-time international payments into Indian bank accounts and enabled cross-border transactions for Indian merchants and customers.
• Sri Lanka:As Prime Minister Modi announced the launch of UPI in Sri Lanka during a visit in July 2023, the fintech landscape is poised for enhanced connectivity, although specific details remain to be revealed.

Conclusion

The global journey of UPI exemplifies its potential to transcend borders, facilitating seamless and real-time cross-border payments. As UPI continues to build bridges between nations and reshape the global payment landscape, its impact on financial connectivity is poised to be a defining chapter in the evolution of modern finance. What began as a revolutionary system within India’s borders has transcended national boundaries, showcasing its potential to redefine the global financial landscape.

(The author is Tharun Madhuru, Product Manager, Publicis Sapient, and the views expressed in this article are his own)