When innovation is successful to a substantial degree, maybe, it’s time to expand. February 2024 had UPI transactions worth about 18 crore rupees with close to 125 crore transactions. Beyond India, it seems like UPI has become a cynosure of all eyes. In February 2023, the RBI announced UPI would be integrated with Singapore’s Paynow, which may have meant more accessible remittances between India and Singapore. Other countries, like Sri Lanka, France and the UAE, are said to have jumped on the UPI bandwagon as well.
So, what does it take to go global with UPI? How could other countries adapt to and build UPI infrastructure? Can a technology, like UPI, redefine the fabric of global economic inequality and pave the way for a truly borderless world economy? And what could the internationalization of UPI really look like?
According to Arjun Goswami, Director of Public Policy at Cyril Amarchand Mangaldas, “If there’s an Indian traveller who has gone to a foreign country, where UPI has been accepted, they would be able to pay a merchant there using UPI. They wouldn’t have to bother with a credit card that has to be enabled for foreign use or other methods. Conversely, when a foreign traveller comes to India, they could use an app on their system to pay in India. So, this makes the payment systems for ordinary people more seamless”.
Though, could this open a Pandora’s box of increased digital surveillance, where one’s actions in foreign countries could be more closely monitored? Could this be the next wave of surveillance capitalism?
Goswami remarks, “UPI doesn’t operate on its own and if it did, it can’t be effective that way. It’s part of what’s being called the ‘India Stack of India’s Digital Public Infrastructure’. So, there are at least 4 layers to it. 1 layer is where UPI-enabled payments are used to move money across. There’s also a consent layer, where there has to be some data protection architecture that’s required for the DPI to work. There’s a paperless layer, which includes an e-KYC or a DigiLocker system. Then, there’s the presenceless layer, which has the digital identity. And all of this works if the consent layer works, so there have to be adequate layers of digital protection. If that isn’t there, there wouldn’t be adequate safeguards. As one starts using UPI transactions, there’s a need to be sure that they’re secure, which means cybersecurity and risk management systems. This is because personal data is involved in the form of financial information or else, there’d be fraud and unauthorized access, so cybersecurity would be required”.
But, for interoperability to work, what are some of the policy changes that India would need to see?
Goswami opines, “From an international perspective, if there are cross-border UPI transactions, the question that arises is how UPI would work if foreign countries don’t have something like Aadhar or a similar system. That’s required, otherwise identities could be stolen. And if there were a system, like Aadhaar, developed internationally, an institutional framework would be needed, which is not an easy process. So, there needs to be a robust legal and institutional framework around these things. The fact that the government is trying to promote not just the internationalization of UPI, but, to some extent, a cross-border option of the Aadhaar system is the correct thing to do, but there could be some challenges”.
“From a domestic perspective, people are used to having UPI for free. The applications that are using UPI at the moment don’t have merchant discount rate fees. Given exponential growth, this becomes quite difficult. That’s why, for a number of years, industry bodies for these payment applications have been pressing for some change, when it comes to MDR. Sure, there are entities trying to make money through commissions, charging fees for brands, monetizing data, like spending patterns, and more; that may help a bit, but over the medium term, it’s not going to be enough. And despite a staggering growth of Internet usage in India, there still seem to be digital literacy problems”, adds Goswami.
And are these some creases to iron, when it comes to UPI?
Goswami declares, “At the moment, there’s a monopoly, when it comes to the UPI being run by the public sector through the NPCI (National Payments Corporation of India). But, if there’s competition with private networks running systems, like UPI, merchants could, then, have a choice. Previously, there was an attempt by the RBI to start new umbrella entities that were private retail payment systems. Some consortiums tried for it, but none of them came through. The fact that there’s no rival means that the improvements in cybersecurity, which could happen, are not happening at the desired level”.
So, with the advent of UPI internationalization, could that spell the death of physical cash?
“I think the notion that cash would completely disappear out of the system may be fanciful. The benefits of digital payments, in terms of ease, do exist, but I don’t think in the immediate term, cash would disappear; no one should be ideologically driven about this. It should be a pragmatic process, where the advantages of digital payments expansion happen through a conscious effort on financial inclusion”, remarks Goswami.
“I think digital payment system operators have a responsibility to spread awareness in Tier-5, Tier-6 and rural India. Whatever we do in the payments space should not make us beholden to a couple of operators. The principles of antitrust and fair competition must continue to operate, for that is the lifeblood of a competitive economy”, quips Goswami.
Watch the entire interaction here:
