Finance

Published: Mar 04, 2023
Updated: Mar 04, 2023

India's UPI and PayNow tie-up signals a push for a third way in global payments

Last week, the central banks of Singapore and India announced a new system for cross-border cash transfers. The partnership between Singapore's PayNow and India's Unified Payments Interface (UPI) was celebrated in India as the first step towards creating a new global payments system for the developing world.

The UPI as a Digital Public Infrastructure

Indian policy makers consider the UPI and its allied elements as one of their biggest innovations in recent times. The UPI provides a platform for banks, non-banking financial corporations, and fintech apps to use on an equal footing. While the Reserve Bank of India operates the UPI alongside a consortium of banks, the state has a big say in how it operates.

The Ease of Use of the UPI

The UPI is very easy to use and separates a user's interface from their bank account. Users can sign up for a UPI app from anyone while having a bank account elsewhere. The system eliminates the need to remember account and routing numbers by linking a mobile phone number to a bank account. Users can change their chosen UPI app quickly and easily.

The Government's Controversial Requirement for UPI Usage:

The Indian government has mandated that users of the UPI should not be charged for its usage. This has spurred companies to compete and innovate to provide a cheaper and more effective interface. PhonePe, owned by Walmart, is the current market leader. Indian policy makers believe that this system prevents companies from using network effects to create permanent monopolies, as can happen in the US. They hope to promote this third way while holding the G-20 presidency this year.

Exporting India's Platform to Other Domains:

India is looking to establish publicly owned or highly regulated platforms in various other domains, such as online shopping, lending, and digital healthcare. These platforms will store records required for authentication, such as ID documents, tax statements, and certificates in the cloud. Users can grant and revoke access to their private data easily. Switching between different user experiences based on cost and usability is a priority.

Creating a Bottom-up Network for Small Cross-border Payments

India's tech leaders envision a future where the UPI and other Indian platforms link up with counterparts in the emerging world, creating a bottom-up network for small cross-border payments. The goal is to connect small- and medium-sized enterprises in these countries with their customers and suppliers, eliminating traditional banks' role in financing these transactions. Other payment networks have a clear incentive to partner with the UPI, given that India is the biggest destination for remittances.

Challenges Faced by India

India will have to move quickly to establish decentralized cross-border payment systems. Singapore's PayNow has already signed its first agreement with Thailand's PromptPay, which is owned not only by a coalition of banks but also by Mastercard's Vocalink. The Association of Southeast Asian Nations already has a policy framework for region-wide digital payments. Other developing countries, such as Brazil, are also upgrading their payment systems and may push their own systems at the G-20. To establish a harmonized network of rules and obligations for instant payment systems, India and Singapore hope to create the "Nexus network."

India and Brazil hope to use their presidencies at the G-20 to streamline rules and regulations to support global trade and investment. They aim to establish shared norms for digital public infrastructure, which would be a rare success for the G-20. The tie-up between UPI and PayNow signals India's push for a third way in global payments.