Recently, India’s payment platform UPI was launched in Paris during Prime Minister Narendra Modi’s visit to France. Though seemingly a small event, it indicates the growing recognition of India’s payment system worldwide. The Government of India said in the Parliament in March 2023 that Singapore, United Arab Emirates (UAE), Mauritius, Nepal and Bhutan have already approved the UPI system. While France is included in this list, Netherlands, Belgium, Luxembourg, and Switzerland are soon expected to join the bandwagon.
Significance of UPI
UPI, the Unified Payments Interface of India, was launched in 2016 by the National Payments Corporation of India (NPCI), an agency supported by the Government of India. It is an instant digital payment system through which money is transferred between different banks. Most importantly, UPI is based on the Indian Rupee. That is why Prime Minister Narendra Modi said in his statement in France that now Indians will be able to pay in Rupees even from the top of the Eiffel Tower. A new feature called UPI International has been added to UPI for using UPI for international payments. With this feature, payments can be made abroad from Indian bank accounts with the help of a QR code. UPI payments were already possible in Bhutan, Nepal, Singapore, UAE and Mauritius, and now France has joined the list.
Notably, RuPay cards were introduced in India in 2014 under the aegis of the National Payments Corporation of India, and later UPI was also introduced to facilitate online payments. Today there are many platforms in India which provide online payments facility to their customers by connecting to UPI. It is true that the trend of online, i.e. digital payments, has increased all over the world, but maximum growth in online transactions is seen in India. Significantly, in the year 2022, Rs 149.5 lakh crore worth of online transactions took place in India. Out of these, transactions worth Rs 126 lakh crore were done only through UPI. Significantly, a total of about 88 billion online transactions were recorded in the country in one year. According to a report by Price Waterhouse Cooper (PwC), the number of online payments could reach one billion per day by 2026-27. More importantly, India accounts for more than 40 per cent of all online transactions worldwide. The great thing is that online transactions in India have been entirely free for long.
Internationalisation of UPI
The internationalisation of UPI has been a significant priority for NPCI. In 2022, NPCI announced that it would work with banks and payment companies in several countries to enable UPI payments in those markets.
The internationalisation of UPI will bring many benefits to users and merchants. For users, this means that they will be able to make and receive payments more conveniently and securely in places other than their own. For merchants, this would mean they could reach a wider customer base and accept payments from Indian customers. In today’s era of cybercrimes, it is also a highly secure payment system that uses two-factor authentication to protect users’ accounts. So we see that even with such a large number of transactions, the frauds are minimal.
The internationalisation of UPI is a significant milestone for the Indian payments ecosystem. This is testimony to the fact that UPI has the potential to disrupt the global payments landscape after its success in India. Currently, the cost of international payments is very high. Internationalisation of UPI will also help in reducing the cost of cross border payments.
Prime Minister Narendra Modi has said that UPI along with RuPay are not only low cost highly secure technologies, they have become India’s identity in the world. He further said “India is happy to share experiences with other countries. Many other countries, including many countries classified as developed economies, are also looking at setting up their own digital transaction mode on the lines of UPI.”
Implications of UPI going global
Since UPI is based on the Indian Rupee, the internationalisation of UPI will enable easy international payments in Indian Rupees. It is to be understood that earlier, it was necessary to use credit and debit cards issued by multinational companies like Visa and MasterCard to make international payments from India, and they were generally dollar-denominated. Even in India, before 2014, these cards were used by customers to make cashless payments to merchants. Up to 2.5 per cent of the total transaction amount was passed on to Visa and MasterCard by the merchants receiving the payment. These card companies used to take this profit to their country of origin. In the year 2014, this amount was more than 1 billion US dollars. Visa and Master cards, which once had a monopoly in online payments, have now lost their share of the card business to RuPay. UPI’s contribution is also more visible in the dwindling business of Visa and MasterCard, as only RuPay-backed debit and credit cards can use UPI. That’s why Visa and MasterCard have been trying to integrate with UPI. Today, more than 700 million RuPay cards have been issued in the country, and RuPay cards dominate the country’s debit card market, but Visa and Master cards still hold their place in the credit card business. But today’s reality is that though the contribution of RuPay cards in card payments has reached 60 per cent and that of Visa and Master cards is only 40 per cent, but the importance of cards in terms of total online payments itself, is low. There is very little scope left for cards because there is no alternative to UPI-enabled platforms to transfer money from one bank account to another and from one person’s wallet to another. Today QR code, mobile numbers, and bank account-based online transactions are happening the most. It is not only convenient and economical; they are extraordinarily fast as well.
A Strategic move
In March 2022, the European Union (EU) banned major Russian banks from using the SWIFT (Society for Worldwide Interbank Financial Telecommunication) system, a Belgium-headquartered global financial messaging system facilitating the transfer of money across different nations.
The move caused significant disruptions in countries such as India, where banks have traditionally relied on SWIFT to carry out trade with Russia. Since then, India has been working on finding a solution to the problem by way of promoting settlement of trade in the Indian rupee and developing mechanisms to give effect to the same. In this regards, arrangements have been made with 19 countries, and the Reserve Bank of India (RBI) in July 2022 allowed foreign banks to open ‘Vostro’ accounts in Indian banks to settle payments in Indian rupee.
There was a time when Western countries used to rule the financial world, commanding a hold over the international finances and the payment systems. SWIFT had a monopoly in global payments. Every now and then, Western block used to threaten the world that if they did not fall in line with their dictates, they will impose sanctions. Their sanctions generally used to mean blocking international payments through SWIFT. Now when in the wake of the sanctions imposed by the European Union on Russia after Russia-Ukraine war, efforts on the part of India to promote the settlement of international trade in Indian rupees, and many other regional blocks also trying to promote the settlement of trade in their members’ respective domestic currencies, is giving a run to western block. This is also accentuating the process of de-dollarisation in the world. In this whole scenario, India’s endeavour to promote RuPay and UPI for international settlements and facilitating settlement of trade in rupees, by allowing foreign banks to open Vostro accounts in Indian banks, can prove to be a game changer in international payment systems. This, with a proven successful UPI domestically and its growing acceptability internationally, is giving an edge to India to become a global leader in international payment systems. n
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