The United States may explore the option of connecting some of its private banks with India's Unified Payments Interface (UPI) to accelerate the development of a fast payments network, said Christopher Waller, member of the Federal Reserve Board of Governors of the United States, on 28 August.
Waller said at the Global Fintech Fest in Mumbai that the US does not currently have enough banks connected to create a full-service fast payments system due to risk management and compliance requirements in order to prevent frauds or money laundering. However, he said that linking with the UPI could be a potential solution.
"We don't have enough banks connected to make a full service product. But we have some private banks which can connect to the UPI," said Waller. "We first need to build a compelling value proposition for such an integration," he said, adding that this process would still take some time to develop.
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Certain frictions are purposely built into the global payment system for compliance and risk-management reasons. "Slowing down the speed at which payments are cleared and settled helps banks prevent money laundering and counter the financing of terrorism, detect fraud, and recover fraudulent or misdirected cross-border payments," said Waller.
Sorting out the legal, regulatory, governance, and cross-border payment systems will be more challenging than the technology itself, he said, noting that "linking technology is the easiest part."
Waller praised India's tech-driven payments revolution, which he attributed to a successful public-private partnership that built a digital payments infrastructure, promoting financial inclusion at a low cost. "I spent 3-4 hours yesterday at the NPCI (National Payments Corporation of India—the founder and manager of UPI), learned a lot about UPI and how it is done," he said at the event.
The UPI, developed by NPCI, is a real-time payment system that allows instant money transfers between bank accounts via mobile devices. Since its launch in 2016, UPI has grown rapidly, integrating over 300 banks and facilitating a seamless, low-cost digital payment experience. As of 2024, it processes over 10 billion transactions each month, with a total monthly transaction value exceeding Rs 15 trillion.
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Waller highlighted how private sector innovators have leveraged the foundation built by the public sector to enhance payment systems, introducing new capabilities while adhering to regulatory requirements. "Building on the foundation led by the public sector, innovators in the private sector seize the opportunity to enhance payments through the introduction of new capabilities that will alleviate frictions, while remaining within regulatory guardrails," said Waller.
Looking forward, Waller suggested that the interplay between the public and private sectors could be crucial in advancing cross-border payments. "Interlinking arrangements would allow banks in different countries, who are users of domestic fast payment systems, to send payments to each other through technical connections between their respective domestic payment systems," he noted.
He also pointed out that the G20's roadmap aims to address challenges in cross-border payments and enhance global payment systems beyond local capabilities, acknowledging that while technical connections are feasible, the real challenge lies in addressing legal, compliance, and operational considerations.
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