UPI's Global Access

UPI's Global Access

GS-3: Indian Economy

(UPSC/State PSC)

Important for preliminary exam:

UPI, Indian digital payments platform, BHIM Unified Payments Interface (BHIM UPI), Reserve Bank of India (RBI), National Payments Corporation of India (NPCI), PhonePe, Google Pay, Indian FinTech companies.

Important for Main Exam:

Fintech Sector in India, Economic Achievements of UPI, Future and Challenges of UPI, Impact of UPI going Global on India, Conclusion.

22 February 2024

Why in news:

In recent times, Unified Payments Interface, commonly known as UPI, is playing the role of a game changer for the Indian digital payments and economy.

  • Currently, UPI is not limited to India, the number of countries accepting it keeps growing.
  • It is noteworthy that India's UPI access to Sri Lanka, Mauritius, France, United Arab Emirates, Singapore, Bhutan, Nepal.

What is UPI:

  • UPI is a mobile-first payment system developed in India by the National Payments Corporation of India (NPCI).
  • UPI, launched by the National Payments Corporation of India in 2016, has been a pioneer in India's fintech story.

Economic Achievements of UPI:

  • From just one million transactions in October 2016, UPI has crossed the 10 billion transaction mark till now. UPI accounted for 75 percent of retail transaction volume in 2022-23.
  • According to GlobalData research, cash transactions have declined from 90 percent of total volume in 2017 to less than 60 percent in 2021. UPI and other digital transaction systems have occupied the remaining space. Although cash is still in vogue in India, UPI has effectively carved a niche for itself.
  • India was a cash economy. But widespread smartphone adoption, government initiatives for bank accounts and cheap data made UPI an efficient and easy payment option.
  • According to CEBR Economic Research, the instant 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.

How does it work:

  • It makes it easy to send and receive by just scanning a QR code or using a user’s phone number. Unlike most digital payment systems, the amount gets directly debited to the linked bank account.

Use:

  • UPI can be used on BHIM, a first-party app. It can also be accessed via third-party platforms such as Google Pay, Amazon Pay, PhonePe, BharatPe, and a lot more. 

Fee payment:

  • Most banks that officially operate in India support UPI payment, and unlike a credit or debit card payment, there is no charge involved in UPI payment.

Antifraud:

  • To prevent fraudulent activities, NCPI has thought of various features like how the account is directly linked to the phone number, and if the SIM card is removed, UPI ceases to work, and at times, one might also face downtime due to service issues.
  • To solve that, NCIP came up with UPI Lite, which does not require a PIN or internet to make transactions. However, there is a limit of Rs 500 per transaction and Rs 4,000 limit per day.

List of countries that officially support UPI payments:

  • Sri Lanka, Mauritius, France, UAE, Singapore, Bhutan, Nepal.
  • Bhutan: Bhutan was one of the first countries to adopt UPI payments outside India back in 2021 in collaboration with the Royal Monetary Authority (RMA) of Bhutan. Besides, Bhutan is also one of the first countries to adopt and issue RuPay bank cards.
  • France: France is one of the first countries in the European region to reach UPI payments. The French government has confirmed that more merchants in France and Europe will soon start accepting UPI payments, which will benefit Indian travelers.
  • UAE: UAE, India's third largest trading partner, has recently announced a partnership with the Government of India regarding the adoption of UPI payments in the country in collaboration with Mashreq, a leading UAE bank.
  • Sri Lanka and Mauritius are the latest islands to adopt India’s UPI payment system on February 12, helping Indian tourists to send and recieve money in these countries.
  • Right now, UPI is available in seven countries, and the list is growing almost every month.

Points related to UPI International payments:

  • To easily make UPI payments outside India, one needs to activate the international payments option on the respective apps.
  • Once activated, the international UPI payment method will remain active for six months, and after that period the individual will have to re-activate for the same period.
  • A small fee may be charged by the bank for processing transactions in Indian Rupees.
  • To activate and deactivate international payments, UPI PIN has to be entered.
  • RuPay credit/debit cards can also be used to make payments in countries like Bhutan, Nepal, Mauritius, Singapore and UAE.
  • Also note that, depending on the country, there will be a certain limit on how much you can spend per day, and making UPI payments will also require an active internet connection.
  • Currently, only select banks support UPI international payments, such as- Bank of Baroda, Bank of India, Bank of Maharashtra, Canara Bank, Central Bank of India, City Union Bank Limited, ESAF Small Finance Bank Limited, Federal Bank Ltd., Indian Bank, IndusInd Bank Ltd., Karur Vysya Bank Ltd., Punjab & Sind Bank, Punjab National Bank, South Indian Bank Ltd., Cosmos Bank, Union Bank of India.

Impact of UPI going Global on India:

  • UPI empowers businesses to focus on building stronger relationships and expanding their global reach.
  • The UPI framework will streamline cross-border transactions and ensure quick and secure settlements between global trading partners.
  • The entry of UPI in France is significant, helping the technology gain a foothold in Europe for the first time. In France, Indian travelers will have easy access to foreign currency.
  • With regard to Sri Lanka and UAE, the entry of UPI will further deepen India's economic ties with both the countries.
  • The increasing global reach of UPI will boost bilateral trade as well as tourism.
  • France has always been one of the top European destinations for Indian tourists. Furthermore, the country is a major business 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 largest trading partner, with bilateral trade exceeding $5.5 billion. Meanwhile, the India-UAE trade partnership is strengthening, especially with the entry into force of the Comprehensive Economic Partnership Agreement last year.
  • UPI's growing global presence also signals huge opportunities for the Indian fintech sector, which attracted $4.8 billion in funding in 2022 and is expected to become a $2 trillion industry by 2030.

UPI: Future and Challenges:

  • The future growth of UPI looks promising. UPI, which accounts for 75 percent of India's digital transactions, is expected to grow fourfold by 2026.
  • A PwC report said that UPI could account for about 90% of the total transaction volume in retail digital payments in the next five years as it expands to rural areas.
  • Considering the substantial scale of international spend, internationalization of UPI can contribute significantly to the growth of the Indian economy.
  • With UPI going global, the payments platform may face tough competition from Visa, MasterCard and other long-established global payments giants.
  • Visa and MasterCard hold about 80 percent of the global payments market, and displacing them will be a difficult task.
  • These payment platforms and networks have been around for a while and are flush with cash, so they won't make it easy for UPI to grow and erode their market share and profits.
  • Additionally, UPI will have to adjust its technology to cater to a broader customer base in the Western world.
  • Initially, the cost of transfer and remittance fees will be higher due to the low penetration rate of UPI.
  • Compliance with various digital regulations and the need for interoperability between different payment systems will be major challenges for UPI.
  • To overcome these challenges, UPI stakeholders can focus on collaborating with global payment system providers and regulators to ensure compliance with local regulations and standards.

Conclusion:

  • The global expansion of UPI presents significant growth opportunities for the Indian fintech ecosystem to not only establish new business use cases but also enrich the Indian economy.

Source: The Hindu, Indian Express

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Mains Exam Question:

What is UPI? Analyze the future and challenges of UPI.