India extends UPI services to France, first in Europe after Singapore

The unified payments interface (UPI) would soon be used in France and Indians travelling there can make rupee payments using the UPI.

UPI can be accepted internationally only if the payment operator in the home country has an arrangement with a similar payment operator in the overseas country.

The National Payments Corporation of India (NPCI) has set up connectivity with Lyra in France, according to a report in the Financial Express.

Within India, the chain of UPI transactions runs from the payer’s bank to the NPCI switch, and then to the payee’s bank.

In February this year, India and Singapore had linked their digital payments systems, UPI and PayNow, to enable instant transfers. In Singapore, the route would include PayNow for UPI payments to work.

For UPI transactions in Singapore, the DBS Bank provides an exchange rate to the NPCI. The organisation adds a markup to the rate. Then the rate and the markup are shown to the customer, and the transaction goes through only when the customer agrees. The sending bank credits the total rupee amount to the NPCI’s settlement bank.

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The NPCI’s settlement bank then instructs the DBS to credit the beneficiary’s bank in Singapore dollars. The NPCI shares a part of the markup with the sending bank, and all banks get the same share.

However, even if an Indian pays in rupees, the final payment to the merchants overseas would be in their local currency. Consumers now use cash, credit/debit cards, and prepaid forex cards.

Will UPI payments catch on?

Usually, credit cards attract a high fee —  mostly 3.5 per cent and GST — but consumers earn reward points on transactions. The fees are often lowered for select premium card products. But, say, in hawker markets in Singapore, where credit cards are not easily accepted, UPI payments could be an option for consumers.  

UPI is certainly more convenient and safer. However, the value proposition for UPI needs to be significantly stronger before it becomes popular.

However, it is not clear whether the cost of the currency transaction in a UPI transaction will differ from that in a credit card transaction for France yet, but, for Singapore, the DBS provides an exchange rate to the NPCI and the NPCI adds a markup.

It seems like the consumer is dependent on the rate that the DBS provides, and thus some consumers may prefer to use a credit card if the forex rates are attractive and there are some add-on benefits.