UPI Goes Global: The Past, Present, and Future of India’s Payments Platform
Ira Singh
31 Aug’23
In a significant milestone for India’s fintech landscape, the Unified Payments Interface (UPI) has transcended national borders, making waves on the global stage.
The UPI’s place of pride in India’s growth story could be easily gauged by Prime Minister Narendra Modi’s statement at the recently -concluded BRICS meeting: “UPI is used at all levels from street vendors to large shopping malls. Today, among all countries in the world, India is the country with the highest digital transaction.”
PM Modi also pitched for the UPI’s expansion into the BRICS grouping, which now has six new member states. “There is scope for working with BRICS on the (UPI) technology,” media reports quoted him as saying.But while experts will keenly watch its expansion into the BRICS bloc, UPI has already begun its march towards global dominance.
Countries join India’s UPI bandwagon
In the past few weeks, three countries have joined the UPI bandwagon quickly – France, the United Arab Emirates and Sri Lanka, according to recent reports. These three countries will now accept transactions via India’s homegrown digital payments technology.
UPI’s entry into France is significant, helping the technology get a foothold in Europe for the first time. Regarding Sri Lanka and the UAE, UPI’s entry is set to deepen India’s economic ties with the two nations.
“Indian travellers will be at ease of using foreign exchange, especially in France. UPI’s growing global footprint will boost bilateral trade as well as tourism,” says Haresh Calcuttawala, Co-Founder of TreZix, a B2B SaaS platform.
Calcuttawala adds that UPI’s framework will smooth cross-border transactions and ensure swift and secure settlements between global trading partners. “UPI empowers businesses to focus on building strong relationships and expanding their global reach.”It is important to give some business perspective on the reasons for the UPI’s expansion into the three countries.
France has always been among the top European destinations for Indian tourists. Moreover, the country is a major trade destination for India’s medium and small businesses, which are likely to benefit from the introduction of UPI.
On the other hand, India is Sri Lanka’s biggest trade partner, with the bilateral trade standing at over $5.5 billion. Meanwhile, the India-UAE trade partnership is going strong, especially with the Comprehensive Economic Partnership Agreement coming into effect last year.
UPI: India’s fintech pride
UPI’s growing global footprint is also a sign of greater opportunities for the Indian fintech sector, which attracted funding worth $4.8 billion in 2022 and is expected to be a $2 trillion industry by 2030.
“This global expansion presents significant growth opportunities for the Indian fintech ecosystem to innovate and establish new business use cases that can play a crucial role in driving its adoption,” says Anand Agrawal, Co-Founder & CPTO of fintech startup Credgenics.
UPI, launched by the National Payments Corporation of India in 2016, has been the torchbearer of India’s fintech story. From just one million transactions in October 2016, UPI is now nearing a landmark of 10 billion transactions. This number seems even more significant considering that UPI accounted for 75 per cent of the retail transaction volume in 2022-23.
The greatest change that UPI has brought about is in the way Indians transact. According to GlobalData research, cash transactions have declined from 90 per cent of the total volume in 2017 to less than 60 per cent in 2021. UPI and other digital transaction systems have occupied the remaining space. Though cash is still the king in India, UPI has effectively created a niche for itself.
“India was a cash economy. But UPI became an efficient and easy payment alternative due to wide smartphone adoption, government initiatives for bank accounts, and cheap data,” says ‘finfluencer’ Anushka Rathod.
It is no wonder that the quick and efficient nature of UPI payments resulted in cost savings of $12.6 billion and added $16.4 billion to the Indian economy in 2021, as per a study conducted by Cebr Economic Research.
The Past: Birth of UPI
The UPI was conceptualized and launched in 2016 by the National Payments Corporation of India (NPCI), with the aim of revolutionizing the way payments were made in the country. It aimed to simplify transactions by allowing users to link multiple bank accounts to a single mobile application, enabling seamless peer-to-peer and peer-to-merchant transfers in real-time. Its user-friendly interface, combined with robust security measures, led to its rapid adoption across India.
The 2016 demonetisation drive was a game-changer for India’s digital payments landscape. Less than six months after Rs 500 and Rs 1000 notes were phased out, the total transaction volume on UPI rose from 2.9 million to 72 million. By the end of 2017, UPI transactions had grown by 900 per cent compared to the previous year. It is also worth noting that 2016-17 saw the launch of cheap data packs. India has the third cheapest internet and undoubtedly helped proliferate UPI payments beyond India’s Tier I cities.
But there is another red-letter day for UPI, which brought international recognition to digital payment technology. That day was November 7, 2019, on the eve of the third anniversary of the demonetisation drive. On that day, tech giant Google wrote a letter to the US Federal Reserve in support of a faster digital payment settlement service.
To bolster its point, Google narrated the success story of UPI in India. Attributing UPI’s success to its “thoughtful planning”, the letter added that “critical aspects” of the design led to its growth in the world’s biggest country. The letter noted how UPI’s growth encouraged Google to enter the payment system through Google Pay while highlighting the success of collaboration between the government, technology and financial services, according to sources.
The Future: Innovations and Challenges
Looking ahead, UPI’s future seems brighter than ever. With the continued growth of digital payments worldwide, UPI is poised to play a pivotal role in shaping the global payments landscape. The NPCI is actively exploring ways to enhance UPI’s capabilities, including interoperability with other international payment systems and the integration of emerging technologies such as blockchain and artificial intelligence.UPI,comprising 75 per cent of India’s digital transactions, is expected to grow four-fold by 2026. A PwC report states that UPI may constitute almost 90% of total transactional volume in retail digital payments over the next five years as it expands to rural areas and tier III and IV cities.
With UPI going global, the payments platform will likely face tough competition from Visa, Mastercard and other long-established global payments giants. Visa and Mastercard occupy about 80 per cent of the global payments market space, and dislodging them will be a tall order.
“These payment platforms and networks have been around for a while and are cash-rich, so they will not make it easy for UPI to grow and eat away their market share and profits,” argues Rathod.
Moreover, UPI will have to adjust its technology to cater to the wider customer base in the Western world. Initially, the cost of transfer and remittance fees will be high due to UPI’s low rate of penetration.
Compliance with various digital regulations and the need for interoperability between various payment systems will be major challenges for UPI.
“To overcome these challenges, UPI stakeholders can concentrate on collaborating with global payment system providers and regulators to ensure compliance with local regulations and standards,” opines Agarwal.