UPI: Local & global

India-Singapore link is an encouraging first step

The Unified Payments Interface (UPI), the real-time payment system developed by the National Payments Corporation of India (NPCI), has done much to revolutionise the digital payments ecosystem in the country. Tuesday’s demonstration of a live cross-border transaction via mobile phones between Reserve Bank of India (RBI) Governor Shaktikanta Das and Monetary Authority of Singapore Managing Director Ravi Menon indicates the level to which this indigenously developed technology built on the India Stack platform has matured.

Though the India-Singapore link marks a big step forward, it is a relatively limited exercise still, and clearly in the nature of a test case. It will enable users to send funds via a UPI ID, mobile number, or virtual payment address via Singapore PayNow up to a limit of Rs 60,000 a day. This apart, the transfer agents will be limited to a handful of Indian banks — State Bank of India, Indian Bank, Indian Overseas Bank, and ICICI Bank — that can enable transactions via their banking facilities or mobile apps. Third-party app providers — such as PhonePe, Google Pay, or Paytm — remain outside the purview of this international link. It should, however, be a matter of time before the system is extended to them because the Big Three account for more than 90 per cent of transactions both in terms of number and value.
 

There is no doubt that the UPI has gained credibility and traction in India to the extent that it is well on its way to achieving the digital economy and financial inclusion that had been one of the stated aims of the government. By 2021, five years after it was introduced as a bank-to-bank pilot project in April 2016, the UPI has become the world’s fifth-largest payment network by volume, behind Visa, Alipay, WeChat Pay, and Mastercard. Calendar 2022 saw the number of such transactions grow 91 per cent and the value increase 75 per cent to Rs 126 trillion. Half the transactions through the UPI were below Rs 200, according to the NPCI transaction data. The ubiquity of this payment system across incomes and geographies of India today suggests that it has reached a level of acceptance that will encourage greater financial inclusion at low cost. In fact, merchants in Cambodia, Malaysia, Thailand, the Philippines, Vietnam, Bhutan, and, indeed, Singapore already accept UPI payments through QR code payment systems.
 

Singapore is a relative minnow in terms of its share of inward remittances — just 5.7 per cent, according to RBI data. The real value of such international payments will be tested if their scope were extended to the Gulf countries, or the US and Canada, which dominate the inward-remittance geographies. That would make the UPI truly inclusive since it could bring within its ambit the thousands of workers who have to rely on relatively slow online money transfers via service providers who charge fairly steep fees. The real concern is the risk of fraud, although bankers aver that the UPI’s simple and secure architecture has reduced the level of vulnerability in the system. The RBI data shows that the exponential expansion of the UPI system has been accompanied by a rise in frauds, though they occur mostly on account of user ignorance rather than hacks. But these are glitches that need addressing before the UPI can become truly global and local.