UPI sets its sights on international expansion

Written by Kapronasia || March 07 2023

Can what works for digital payments in India work globally? That is the most pressing question today for the National Payment Corporation of India’s (NPCI) United Payment Interface (UPI) payment rail, the most successful initiative of its kind. While many fintech success stories have come entirely from the private sector, UPI shows that public-private digital financial inclusion efforts can bear fruit when they are implemented well. Having achieved dominance domestically, UPI is now keen to expand overseas.

UPI has transformed how Indians make payments, allowing them to transfer money instantly from one bank account to another. If UPI can replicate this success overseas, it could be a game changer for India’s fintech sector – and it also would be a first for a digital payment rail in Asia.

We think the biggest selling point for UPI internationally is that it could both speed up and reduce the cost of cross-border transactions to and from India, the top remittance market in the world.  According to the World Bank, India received US$87 billion in remittances in 2021, the most of any nation in the world and well of ahead No. 2 China and No. 3 Mexico.

It is possible that NPCI want to establish a homegrown alternative to SWIFT: less expensive payment flows between India and the world on the country’s own digital payment rails. That so many key players in the Indian financial ecosystem are part of UPI’s network augurs well for this endeavor. About 330 banks and 25 apps use UPI, including all the key third-party payment providers like Google Pay, PhonePe and Paytm.

To that end, PhonePe said in early February that it would extend support for UPI international payments in the UAE, Singapore, Mauritius, Nepal and Bhutan. “Users will be able to make payments in the foreign currency directly from their Indian bank — just like they do with international debit cards,” the company said in a statement.

A key measure of UPI's success overseas will be merchant adoption levels. One way to accelerate merchant adoption would be to partner with local payments processors or aggregators that can help extend support for the Indian payment rail in their respective countries. 

In late February, UPI hit another important milestone: India linked UPI with Singapore’s PayNow real-time payment system, a move that could ultimately disrupt the more than US$1 billion in annual cross-border flows between the two nations.

As for the UAE, thus far, India has signed a deal with Mashreq Bank that enables Indian travelers to the country pay for their purchases on UPI. However, it is possible that India and the UAE will soon work out an arrangement that allows for remittances from the UAE to India given the former’s large Indian expat population. The two countries discussed allowing cross-border remittances via UPI during a meeting between Indian External Affairs Minister S. Jaishankar and UAE Foreign Minister Sheikh Abdullah bin Zayed Al Nahyan in New Delhi last November.

Another important country for UPI’s expansion is Nepal as it could show the feasibility of replicating UPI’s success in India from the ground up in a foreign market. NPCI has positioned expansion into Nepal as a milestone in UPI's international expansion given that UPI will function for Nepali users like it does for Indians in India.