Will Cross-border UPI Take Off Any Time Soon? Extending UPI to cross-border transactions can further empower individuals and businesses in participating countries, particularly those with limited access to traditional banking services, say experts

A few months ago, India and Singapore linked their digital payments systems, Unified Payments Interface (UPI), and PayNow. This was conducted as an experiment to see the disruption UPI can make in the cross-border flow of money. India and Singapore users that hold accounts with participating entities such as Axis, DBS, ICICI, SBI and a few others, and DBS Singapore, Liquid Group from Singapore can transact instantly using the VPA or QR flow. The settlement is also instant & 24x7.

Paytm has also said it will soon launch UPI-based cross-border payments. In April this year, Venlo, a neo-banking platform, launched a UPI-powered app to provide a faster and effortless cross-border payment experience for users. Several countries have also expressed their intent to adopt homegrown UPI, and India will provide the technical know-how, software and handholding support to these countries, National Payments Corporation of India (NPCI) MD & CEO Dilip Asbe told the media in January this year.

Experts opine that UPI has tremendous potential to bring several disruptions to the cross-border flow of money. But, before we look at how exactly will UPI change the cross-border landscape for companies, some data and explainers on UPI adoption in India:

• UPI is a system that powers multiple bank accounts into a single mobile application (of any participating bank), merging several banking features, seamless fund routing & merchant payments into one hood, NPCI explains. It also caters to the "Peer to Peer" collection request which can be scheduled and paid as per requirement and convenience.
• The pilot launch was on 11th April 2016 by Dr. Raghuram G Rajan, Governor, RBI at Mumbai and banks started to upload their UPI enabled Apps on Google Play store from 25th August, 2016 onwards.
• In FY 2022, PhonePe held 46 percent share of UPI usage in India, followed by Google Pay with 34 percent.

Implementation of cross-border UPI

Experts are confident that UPI's user-friendly interface and instant payment settlement can streamline cross-border payments, reducing the complexities and delays associated with traditional methods. "Their digital nature eliminates the need for intermediaries and reduces transaction costs, making cross-border transfers more affordable for individuals and businesses. UPI's widespread adoption in India and several other countries have already boosted financial inclusion by providing easy access to digital payments. Extending UPI to cross-border transactions can further empower individuals and businesses in participating countries, particularly those with limited access to traditional banking services," said Somdutta Singh, founder & CEO, Assiduus Global and an Angel Investor LP in several key marquee funds.

The implementation of cross-border UPI, however, depends on some key factors mentioned below:

• Regulatory approvals
• Technical integration
• Bilateral agreements between countries
• The willingness of stakeholders to collaborate

"This is a big benefit for remittances and transfers, but these payments are currently restricted to p2p transactions only - Transactions must be carried out via participating entities, via prescribed apps - this translates to some friction/limitations compared to the interoperability that UPI is known for. Participating entities on both sides are fairly limited, and this could limit market size/reach," said Sonal Saldanha, VP, Investments, 3one4 Capital.

Global remittance flows to India reached $100 billion last year, with annual remittance from Singapore to India estimated at $1 billion, according to World Bank data. "Retail is a small fraction of this overall share, but will lead to meaningful consumer benefits in any case," he added.

Forex is also a complicated subject with extreme variance in KYC, anti-money laundering (AML) foreign exchange management laws, authorized dealers and so on across jurisdictions. Harmonizing these regulations across countries can be challenging and may slow down the adoption of cross-border UPI. "Rupay and UPI have critical mass in India and these are governed by NPCI. NPCI has been leading the charge to have more widespread acceptance for RuPay and UPI. There are now a number of card reciprocal arrangements in place for Rupay acceptance in virtually every country, but this is such a fragmented market that there's always room for improvement. Similar efforts are ongoing for UPI, with bilateral agreements with payment system operators and acceptance networks in other countries for inward & outward flow of money," said Saldanha.

Implementing cross-border UPI also requires seamless integration between the payment systems of different countries, which may involve overcoming technical barriers and interoperability issues.

Moreover, cross-border payments often involve multiple intermediaries, such as correspondent banks, clearinghouses, and payment processors. "Coordinating the involvement and cooperation of these intermediaries in cross-border UPI can be complex and may require additional agreements and partnerships. Lastly, for cross-border UPI to pick up, countries need to establish bilateral agreements and collaborations to enable interoperability between their respective payment systems. These agreements involve negotiations, discussions on data privacy, security concerns, and mutual trust, which can take time to finalize," said Singh.

Impact it can create

Talking about the possible impact of UPI-PayNow linkage, Madhukar Bhardwaj, Principal, Physis Capital said, "Users of the two rapid payment systems in either country can transmit money across borders via mobile apps thanks to the UPI-PayNow interoperability."

Bhardwaj also listed out the stakeholders who (from India perspective) could benefit from this as below:

1. Migrant workers or professionals in Singapore and their families in India.
2. Students studying in Singapore and their families in India.
3. Indian businesses having customers in Singapore.
4. Banks & payment companies in India involved as part of facilitation.

Leveraging India's G20 presidency, the Indian government has significant plans to expand its digital infrastructure like UPI and Digi locker, globally. The government intends to take these payment solutions models on a global front. "It's a slow start but I believe it will pick up in times to come. Being the world's first such cloud-based infra linkage it is still in its early-adoption stage, though the UPI-PayNow linkage has seen progress as they are adding new users and use cases. But, the impact of the low daily remittance limit of just 1000 Singapore dollars, low awareness and low adoption to newer technologies are few of the reasons for slow progress," said Milan Sharma, founder & CEO, 35North Ventures.

He also believes that if these payment solutions pick up in the remittance market, it will be the biggest disrupter in $600 billion market. "The current remittance cost is around 6.5 % which will drop down significantly if such innovative payment solutions are used and this will benefit the consumers and newer businesses in a positive manner while it will be negative for traditional banks as their fee income will reduce drastically," added Sharma.

It has taken time for these networks to mature and build up enough scale & leverage. So, experts closely watching this space believe that we should expect to see more widespread adoption going forward.