INDIA INSIGHT:
backing of the country’s central bank. NPCI, the overarching group in India for UPI and other payment services, is a not-for-profit whose growing base of shareholders include domestic lenders, foreign peers, fintech firms and international technology goliaths. As a result, NPCI reflects the payments community in India. Countries can develop new products and services themselves atop the digital rails without depending on India.
India’s tech achievements also extend beyond its payments system. “UPI is part of a larger fintech revolution that is delivering the last mile of state services to the people, and which the private sector has been able to use well”, says Manjeet Kripalani, executive director of Gateway House, a foreign policy think tank based in Mumbai. Another catalyst for India’s startup economy is its biometric identity system. Aadhaar, which covers some 1.3 billion people, helped hundreds of millions of individuals access bank accounts. Getting data security right is important, too.
Further out, there could be mutually beneficial returns for India and those that follow its technology lead. Global adoption of a UPI QR standard would support a long overdue revolution in driving down cross-border remittance fees. India has a strong incentive: It’s the world’s largest recipient of such inflows, receiving $87 billion in 2021, according to estimates from the Global Knowledge Partnership on Migration and Development, or KNOMAD. For countries like Nepal, for whom India is its top trade partner, overall remittance inflows are small in volume but amount to nearly 25% of GDP.
The costs for sending money across borders around the world is painfully high, averaging nearly 6.3% or nearly $13 for every $200 transferred, the typical remittance transaction size, per World Bank estimates. The percentage fee is less for higher amounts. UPI could drive the cost down closer to the pure foreign exchange margin, which ranges from 1.4% to 3%. Sending funds through digital services is already cheaper than using banks and money transfer operators. As China grapples with the economic and diplomatic constraints of its overseas public works projects, India’s digital nuts and bolts are building useful bridges.
• Nepal is adopting India’s interoperable real-time digital payments model, payment groups in both countries said in a joint statement on Feb. 17.
• The move makes Nepal the first country outside India to fully embrace the “Unified Payments Interface”, the statement said. National Payments Corporation of India is partnering with an entity licenced by the central bank of Nepal for the initiative. In July, Bhutan became the first country to adopt UPI standards for its Qr-code rollout.
• UPI is an instant real-time payments system, allowing users to transfer money across multiple banks without disclosing bank account details. UPI handled digital payments worth $940 billion in 2021, equivalent to roughly 31% of India’s GDP.