Is India’s UPI real-time payment system ready to go global?

It is no exaggeration to say that India’s United Payments Interface (UPI) real-time payment 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 its launch, UPI has accumulated 260 million users in a population of 1.4 billion and has 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 all consumers in the Asia-Pacific region to use new cashless payment methods with 93% likelihood of having made such a payment in the past year.

While many fintech success stories have come exclusively from the private sector, government-backed UPI shows that public-private digital financial inclusion can bear fruit when implemented well. After achieving dominance at home, UPI has now set its sights on global expansion.

The question is: Can what works for digital payments in India work globally?

Focus on money transfers

The biggest selling point for UPI internationally is that it can both accelerate and reduce the cost of cross-border transactions to and from India, the world’s top remittance market. According to the World Bank, India’s remittances will exceed $100 billion by 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 needs to work out agreements with the countries from which the Indian diaspora sends the most remittances home. The United Arab Emirates is No. 2 on this list after the United States, and a breakthrough could be on the way. The two countries discussed allowing cross-border money transfers via UPI during a meeting between India’s Foreign Minister S. Jaishankar and UAEUAE Foreign Minister Sheikh Abdullah bin Zayed Al Nahyan in New Delhi last November.

Although India has signed an agreement with the UAE’s Mashreq Bank that will enable Indian travelers to the country to pay for their purchases on UPI, that is small potatoes compared to the money transfer market. The UAE accounts for up to 18% of India’s inward remittances, which translates to $18 billion.

Singapore is also an important remittance market for India, although it is much smaller than the UAE. In late February, UPI reached another major milestone: India linked UPI with Singapore’s PayNow real-time payment system, a move that could eventually disrupt the more than $1 billion in annual cross-border flows between the two nations.

SWIFT challenger?

It is possible that UPI’s benefactor National Payments Corporation of India (NPCI) aims to establish a homegrown alternative to SWIFT: cheaper payment flows between India and the world on the country’s own digital payment rails.

Normally, it costs Indians $13 to send $200 home. However, there is no transaction fee for using UPI. No wonder NPCI International Payments CEO Ritesh Shukla believes that “the remittance market is ripe for disruption.”

That so many key players in India’s financial services sector are part of UPI’s network will bode well for such efforts. About 330 banks and 25 apps use UPI, including all major third-party payment providers such as GoogleGOOG Pay, PhonePe and Paytm.

NPCI also seems interested in building a SWIFT alternative, at least in part for geopolitical reasons. Admittedly, there is demand in this respect for alternative cross-border payment rails, but whether India can or will be the country that leads such an initiative is uncertain.

Measure for success

One way to measure the success of UPI’s international expansion efforts will be by the scale of the network. The lowest hanging fruit will be support for UPI international payments so that Indians abroad can pay for goods and services with the platform. In this regard, UPI is already present in one form or another in UAE, Singapore, Mauritius, Nepal, Bhutan, France and UK. Looking ahead, it will be important for UPI to enter the US, Thailand, Indonesia, Malaysia, Switzerland and Australia – all countries preferred by Indian travelers.

Another important measure of UPI’s success abroad will be merchant adoption levels. One way to accelerate merchant adoption is to partner with local payment processors or aggregators who can help expand support for the Indian payment lane in their respective countries.

An important case study for UPI’s global expansion is Nepal, as it can demonstrate the possibility of replicating the platform’s success in India from scratch in a foreign market. NPCI has positioned expansion into Nepal as a milestone in UPI’s international expansion given that UPI will work for Nepalese users as it does for Indians in India.

“Nepal will be the first country outside India to adopt UPI as the payment platform driving the digitization of cash transactions,” NPCI said in February 2022.

If UPI thrives in Nepal, it could open the door for the system to expand similarly in neighboring countries like Bhutan and Bangladesh that have close ties with India and are increasingly embracing digital financial services. While the population of Bhutan is small at 777,000, Bangladesh represents a significant market opportunity with a population of 169 million.

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