MC Explains: Who stands to benefit from India's UPI and Singapore's PayNow linkage

What is UPI Lite?

India's homegrown real-time payment system, Unified Payments Interface (UPI) echoed throughout Singapore on Tuesday as the two countries inked a pact to launch cross-border connectivity between the UPI and its Singapore counterpart PayNow.

Reserve Bank of India (RBI) Governor Shaktikanta Das and Ravi Menon, Managing Director, Monetary Authority of Singapore (MAS) in the presence of India's Prime Minister Narendra Modi and his Singapore counterpart Lee Hsien Loong announced the launch through video conferencing on February 21.

What does UPI-PayNow linkage mean? 

The UPI-PayNow linkage basically means that Indians can now use any UPI-integrated payment apps like Google Pay, PayTM, PhonePe, and others to send money to their friends and relatives in Singapore and vice versa.

Before this linkage residents and businesses usually transfer through physical wire transfers in banks like SWIFT or through online transfers for a hefty fee.

In fact, the project to link both payment systems was first established in September of 2021 to facilitate faster and low-cost, cross-border transactions relating to trade and other remittances between the two countries.

"The launch of cross-border payment linkage between India and Singapore to enable the real-time transfer of funds is a much-awaited development. With this facility, funds held in bank accounts or e-wallets can be transferred to/from India using just the UPI ID, mobile number, or VPA", said Mandar Agashe, MD, Sarvatra Technologies Ltd.

Indian banks that are eligible presently for remittances -- the State Bank of India, Indian Overseas Bank, Indian Bank, and ICICI Bank -- will facilitate both inward and outward remittances, according to the RBI's press release on Tuesday.

Axis Bank and DBS India will facilitate inward remittances only presently. And, similarly, for Singapore users, the service will be made available through DBS-Singapore and the NBFC  Liquid Group.

Also read: UPI-based digital wallet transactions to soon exceed cash deals, says PM Modi

Will this revolutionise cross-border payments?

To understand whether this is ground-breaking, one needs to understand the existing, inherent challenges that are prevailing in the current ways of transferring money to Singapore and abroad.

One of the main challenges of sending remittances or cross-border payments is the high cost.

Reports show that even the cheapest available provider charges 8.6% of the transfer amount (including all fees and exchange rates) as part of the total cost of an INR-SGD transfer.

"There are costs involved such as currency exchange costs, intermediary charges, and regulatory costs. The cost of sending money across international borders remained high, around 6.4 percent of the transaction amount on average in the first quarter of 2021," wrote Naveen Jaiswal, Partner IBM Global Consulting Solutions Leader for Industries in a LinkedIn post.

Another biggest challenge is time. International payments through banks usually take around 2-3 days using the current system of SWIFT  even though some bank transfers happen within 24 hours rarely.

However, the new UPI-PayNow linkage strives to address these two prominent issues.

"The linkage is said to enable users to make instant, low-cost fund transfers directly from one bank account to another between Singapore and India. When implemented, fund transfers can be made from India to Singapore using mobile phone numbers, and from Singapore to India using UPI virtual payment addresses (VPA) within a few hours,"  The Singapore press statement on the linkage said.

While this is new in India cross-border payment transfers are getting revolutionised across the world.

For instance, in 2021, Moolahgo, a Fintech headquartered in Singapore, announced the launch of its real-time payment service from Singapore to Indonesia eWallets through the use of mobile phones.

Later in 2022, Singapore's PayNow launched a cross-border solution to Thailand's PromptPay.

"This is definitely a positive move, while inter-operability of real-time money transfer through apps is happening across the globe the UPI and PayNow integration will definitely fast-track the process," said a top payment solutions firm's executive requesting anonymity.

Who stands to gain from this move?

To begin with, a few banks have been selected from India and Singapore to offer this facility. Customers of these banks will be able to can undertake cross-border remittances using the bank’s mobile banking app/internet banking.

Currently, RBI has put a per-day transfer limit for Indian users of Rs 60,000 (equivalent to around SGD 1,000), which may be revised later.

The biggest gainers from this will be migrant workers, students, travelers, and businesses, especially the small and medium enterprises trading from Singapore.

"In today’s age, technology connects us in more ways than one and fintech plays a major role in creating that connectivity… The people who will especially benefit from this are migrant workers, professionals, students, and their families,” said Prime Minister Narendra Modi during the launch.

What are the other countries that are lining up next to adopt UPI?

India’s UPI system is steadily becoming attractive globally. The facility is seeing international extension to inbound foreign travelers from G20 countries for making merchant payments and non-resident Indians (NRIs) in selected international countries.

Union Minister Ashwini Vaishnaw on February 13 said that India has signed memoranda of understanding (MoUs) with 13 countries including Malaysia, Thailand, Philippines, South Korea, and Japan that want to adopt the Unified Payments Interface (UPI) for digital payments.

Nepal became the first foreign country to deploy UPI as a payment platform.  With the collaboration between Nepal's Manam Infotech and Gateway Payments Service, person-to-person (P2P), person-to-merchant (P2M), and cross-border payments have been made operational.

The global partnerships for UPI adoption have come through as the NIPL (NPCI International Payments Limited). NIPL was incorporated in April 2020 as a wholly owned subsidiary of the National Payments Corporation of India (NPCI), devoted to the deployment of RuPay and UPI outside of India.

In fact, sources say that Japan is next in line to announce a similar partnership soon.

What are some initial hiccups?

Businesses and residents are awaiting more clarity on the linkage.

"Since this is a new payment facility, its success will also depend on the guidance and assistance that the customers in Singapore might need. We look forward to the role of fintech in scaling this facility further, " Said Anand Kumar Bajaj, founder, and CEO of payment solutions firm PayNearby.

"I use bank transfer and they have a transfer limit. It used to be a major challenge for fee payments. The transfer limit of Rs 60,000 presently might be too low, especially for student college fee transfers and not sure what's the limit on the number of transactions per day. Also if this is said to be low-cost and not no-cost so then what's that cost percentage is not known, " said an Indian student studying law in Singapore on the condition of anonymity.

The usual cost of transfer through wires is almost $30-$50 a transaction, I'm sure the UPI mode will be much cheaper but more clarity will be helpful, the person quoted above said.

Fintech experts say that while this is in its initial phases, including more banks in the system will turn more helpful for businesses going ahead.