UPI gets a boost in its quest to go global

Written by Kapronasia || January 25 2024

We recently wrote about how Google Pay has defied the odds in India, a crucial fintech market where both American tech and credit card giants have struggled to carve out a niche. The Google Pay app continues to hold a roughly 35% market share of the paramount homegrown payments rail United Payments Interface (UPI) in India, while WhatsApp Pay and Amazon Pay each have less than 1% and PayPal is absent altogether.

While Google has aggressive domestic competitors in India’s payments space like Walmart-backed PhonePe and local fintech giant Paytm and has been accused of monopolistic practices given the dominance of its app store, the U.S. tech juggernaut has nevertheless mostly avoided regulatory travails in the subcontinent. That is because in India’s fintech market, Google is a global company that usually manages to still think locally.

With that in mind, its decision to team up with UPI on the Indian payment rail’s international expansion looks like a shrewd move that could both support an important policy objective of the Indian government and offer Google Pay new growth opportunities.

A strategic tie-up

On January 17, Google India Digital Services Pvt. and National Payments Corporation of India, the creator of UPI, signed a deal to broaden UPI’s services beyond India. The tie-up intends to both make payments outside of India convenient for Indian travelers and pave the way for UPI-inspired payment systems in other countries. “This is in alignment with NPCI’s endeavor of bolstering India’s position in the global digital payment landscape,” UPI said in a statement, adding that the agreement will also support the simplification of remittances by reducing dependence on conventional money transfer channels.

By teaming up with UPI, Google not only creates new digital finance opportunities for itself, but also signals to the Indian government that it is an important partner in New Delhi’s push to take the homegrown payments rail global – something that Prime Minister Narendra Modi has personally advocated. For instance, at the BRICS summit in August 2023, Modi noted that UPI has expanded to countries like the UAE, Singapore, and France. “There are many possibilities of working on this with BRICS countries as well," he said.

Also in August, Modi told India’s Business Today that 46% of global digital payment transactions today are in India, which he described as “one shining example of the success of our policies,” adding that “the world today sees India as the incubator of innovation.”

The remittances angle is important too. In a recent report, the World Bank noted that India’s remittance inflows reached US$125 billion in 2023, the highest in the world and well ahead of No. 2 Mexico and No. 3 China. Annual growth was a brisk 12.4%.

In March 2023, NPCI signed a deal with Singapore’s PayNow to facilitate cross-border real time money transfers. The Monetary Authority of Singapore reckons that using this payment rail would reduce the costs of remittances between the two countries by 10%.

Learning from Alipay

As UPI prepares to accelerate international expansion, there are important lessons it can learn from another Asian fintech giant with ambition to grow overseas. Indeed, China’s Alipay was the first major Asian fintech to try and gain a global foothold – an effort that has met with mixed results for several reasons.

First, Alipay never said so explicitly, but its flurry of strategic acquisitions of e-wallets in every major Southeast Asian market suggested that the Chinese company wanted to build an alternative payments rail for the region. The trouble with that strategy is that Southeast Asia is not one market or regulatory regime like Alipay’s home market of China. Such a project might not come to fruition for many years.

Even central bankers in the region may not succeed in creating a regional QR code-based payments system – though they are working assiduously to do so. They do have the advantage of being the regulatory decision-makers.

Second, Alipay underestimated geopolitical risk, best encapsulated by the failed bid of its parent company Ant Group to acquire MoneyGram in the United States. Though Ant later successfully acquired the UK’s WorldFirst in 2019, that company had to shut down its U.S. operations for the deal to go through.

Thus far, UPI appears to be expanding in a more strategic and calculated manner than Alipay did. Expansion has occurred first in countries that send the most remittances back home to India, like the UAE, U.S. and Singapore, as well as Nepal, a close neighbor of India’s and a suitable market to try and build a UPI payments rail from the ground up. If the Nepal expansion is successful, it could serve as a template for other emerging markets.

Finally, having Google as a partner augurs well for UPI. Very few tech companies have Google’s world-leading combination of resources, capital, technology and brand power. We expect that this tie-up could prove pivotal in UPI’s efforts to put down roots outside of its home country and take Indian fintech global.