The Unified Payments Interface (UPI) was launched in 2016 by an entity of the National Payments Corporation of India (NPCI) under the Ministry of Electronics and Information Technology. Since then, it has revamped the country’s digital payments landscape.
Used by millions, it has boosted economic growth and helped India achieve its aim of financial inclusion. But why did no other country consider this technology before?
Here’s a detailed picture.
Why Has The UPI Been So Successful In India?
The UPI is a product of the Reserve Bank of India’s (RBI) vision of encouraging a less-cash society by developing an electronic payment architecture.
According to the Observer Research Foundation’s (an Indian think tank) research, a 1% increase in UPI transaction volume can boost GDP by 0.03%. Since its birth, the UPI has only grown, and today, it handles 80% of the country’s digital payments.
The primary reasons for the increase to 14.4 billion transactions in June 2024 from 0.8 billion transactions in January 2018 are the widespread use of mobile internet, the affordability of smartphones, their easy integration with India’s current banking infrastructure, and the linkage between UPI and Aadhaar (an Indian digital identity system), which ensures secure transactions and thus builds trust among its users.
According to a recent BCG report, UPI transactions are expected to triple from $3 trillion today to $10 trillion by 2026 and capture India’s digital payments market, which includes retail payments, business-to-business payments by MSMEs (micro, small, and medium enterprises), and government payments.
As the world gears up to become a cashless society, CEO of NPCI International Payments Ltd (NIPL) Ritesh Shukla said, “Our competition is with cash. There is still a lot of it in circulation that we need to get rid of, not only in India but globally.”
Now that UPI has proved to be an extremely successful domestic program, India also plans to export it to other countries. As the world is moving towards financial modernisation, India can play a powerful leadership role in technological diplomacy by providing secure digital payment solutions.
Why Was India The First One To Develop The UPI?
Astonishingly, the idea of something like the UPI did not come to the developed world. The US, for example, where big companies such as Apple, Facebook, Google and Microsoft were born, stands seventh in the list of countries with the most digital transactions.
One of the reasons why the UPI was born in India and not in any other country is each nation has a different financial structure. There is a wide difference in the management and security of data in these systems.
In the US, most of the population has a credit or debit card, while the UPI was launched in India when the card system wasn’t very strong. In 2014-15, India had only 21 million credit cards in a population of 1.27 billion while only 35% of Indians had bank accounts in 2011.
This is why UPI grew as soon as it was introduced in the country as it allowed trustworthy, reliable and hassle-free online payments, whereas, in the US, the citizens already avail of debit and credit cards. Hence, it is very difficult to establish such a system there.
“USA already has a card-based network for payment systems—built by VISA/Mastercard. Everyone has at least one debit/credit card and is widely used everywhere,” said the director of Citi, Saraswathi Ramachandra to Analytics India Magazine.
“USA has other instant payment systems such as PayPal or chase-pay, Apple Pay and others and while these don’t have instant payment systems like UPI, the market has been built already and there’s inertia to change,” the director added.
For instance, Apple Pay is a credit card on the smartphone where customers are charged a fee per transaction, which is not the case for UPI. According to a survey conducted by LocalCircles, 75% of users will hit the ‘quit’ button on UPI if any charges are applied.
Read More: Are Indians Ready To Pay A UPI Transaction Fee?
Ramachandran added that banks in the US are not very interested in installing a free instant payment like the UPI, saying, “Banks are ready as long as there’s money in it! They make huge profits via charges for payment services via MDR which is currently paid by merchants and as long as this is maintained, banks will be willing.”
Therefore, the reason why the West has not adopted a UPI-like payment system is that money moves in a very different way there than it does in India. Moreover, the zero merchant discount rate (MDR) and cash backs offered by third-party players, in the case of the UPI, are unprofitable for the banks that aren’t able to make money out of it.
However, when we talk about cross-border transactions, the UPI can potentially accelerate and reduce the costs, to and from India, which is the world’s top remittance market as per the World Bank. Discussions on permitting cross-border remittances through UPI did take place between Indian External Affairs Minister S. Jaishankar and UAE Foreign Minister Sheikh Abdullah bin Zayed Al Nahyan in New Delhi in November 2022.
India then signed a deal with UAE’s Mashreq Bank, that allowed Indian travellers to the nation to make their payments via UPI.
Nepal is another country that has adopted the UPI for cross-border transactions with India. In a statement, the NIPL mentioned achieving a major milestone in Nepal by surpassing 100,000 cross-border UPI Person-to-Merchant (P2M) transactions.
India has also linked the UPI with Singapore’s PayNow real-time payment system, in February 2023.
A major requirement in making UPI go global is to lobby and gain support for UPI international payments so that Indians overseas can use this platform to make payments.
While it is already widely accepted in countries like Bhutan, France, Mauritius, Singapore, Sri Lanka, and the UAE, it is still important to integrate it into all the other countries, such as the US, Thailand, Indonesia, Malaysia, Switzerland, and Australia, that Indian travellers favour.
Sources: ORF, World Bank, Business Today
This post is tagged under: UPI, NPCI, Ministry of Electronics and Information Technology, US, Thailand, Indonesia, Malaysia, Switzerland, Australia, Bhutan, France, Mauritius, Singapore, Sri Lanka, Nepal, UAE, PayNow, P2M, Mashreq Bank, India, Indian External Affairs Minister, S. Jaishankar, UAE Foreign Minister, Sheikh Abdullah bin Zayed Al Nahyan, New Delhi, MDR, LocalCircles, Apple Pay, credit card, debit card, VISA, Mastercard, Citi, Saraswathi Ramachandra, Analytics India Magazine, Apple, Facebook, Google, Microsoft, Ritesh Shukla, MSME, BCG, RBI
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