UPI’s path to securing global status is strewn with many obstacles

The total UPI transaction value accounted for nearly 86 percent of India’s GDP in FY22.

The Unified Payments Interface (UPI) has emerged as a resounding success story in India, powered by the government’s digital stewardship policies and a proactive Reserve Bank of India (RBI), along with a thriving startup ecosystem. Given the then-absence of an established digital or card-based payment system in India, there was a critical need to develop a platform like UPI that facilitated fast, reliable, and convenient digital transactions. Since its introduction in 2016, with transactions facilitated by mobile numbers and QR codes, UPI has surpassed credit and debit cards in India. It has more than 260 million users. The total UPI transaction value accounted for nearly 86 percent of India’s GDP in FY22 with about Rs 125.95 lakh crore transacted through it.

However, UPI has proven to be unprofitable for both banks and popular payment applications such as Google Pay, Paytm and PhonePe. The scenario where customers are charged zero rupees per transaction, and instant payment applications are operating at a loss, presents an unfavourable situation for banks.

Several countries were keen to achieve internet and payments sovereignty following the impact of US payment sanctions on Russia. India proposed its digital public infrastructure (DPI) as a self-owned technology stack that promotes sovereignty. Now, the question arises: can UPI replicate its success overseas?

Overcoming Challenges

Firstly, bureaucracy and regulatory frameworks in different countries can pose complex and time-consuming hurdles. Coordinating between multiple government agencies becomes crucial to navigate through these challenges effectively and efficiently. Clear financial regulatory guidelines and streamlined processes are imperative for successful deployment. Establishing interoperability with existing payment systems and banks is a technical challenge. Different countries may have varying standards and protocols, necessitating comprehensive efforts to ensure seamless integration and efficient transactions. Addressing security concerns, building trust among users, and mitigating risks related to data privacy, security and fraud prevention are vital for successful expansion.

Secondly, ensuring the financial viability of the payment framework abroad necessitates significant investments in infrastructure, technology and awareness campaigns. Collaboration with local stakeholders and financial institutions becomes crucial to garner the necessary support. UPI needs to differentiate itself and provide compelling advantages to attract users and merchants. Localisation efforts — including adapting to local languages, customs and regulatory requirements — are essential for seamless integration and widespread adoption.

In countries with limited digital infrastructure or lower smartphone penetration, promoting smartphone adoption and investing in infrastructure development become key priorities. UPI must adapt by exploring alternative channels such as feature phones or USSD-based transactions to reach a wider user base. It is precisely in developing countries where UPI can offer financial inclusion solutions and build citizens' confidence through zero-cost access and real-time transactions.

Taking On The Cards

Expanding into major economies of Europe and the US presents its own unique set of challenges. Geopolitics and domestic political compulsions come into play, particularly in countries dominated by large financial entities like Visa and Mastercard. Despite being home to successful tech giants such as Apple, Google, Facebook and Microsoft, the US finds itself at an unexpectedly low seventh position when it comes to digital transactions across nations globally.

The toughest challenge to UPI's entry into the US market is the formidable influence of the card lobby. The dominance of financial giants like Visa and Mastercard in the US payment system poses a significant barrier to the adoption of a disruptive payment framework like UPI. The strong lobbying power and influence of these established players will impede the introduction of UPI in the country. Instances such as US trade officials trying to lobby India to loosen rules for card networks during the launch of RuPay would outline the persuasive tactics employed. Shifting from a system where customers are charged zero fees per transaction to one that challenges the profitability of well-established financial institutions may be met with resistance. Overcoming the lobbying obstacles and regulatory hurdles will require strategic political navigation and concerted trade efforts to make UPI's entry into the US a reality.

Control Of Digital Data

India's perspective emphasises the importance of critical digital infrastructure such as payment systems, identity management and data flow being publicly owned by the government rather than private entities. This approach highlights the belief that public ownership of such infrastructure is essential to ensure control and sovereignty in the digital domain.

The RBI has been actively advocating the internationalisation of UPI since 2020, driven by the need to mitigate geopolitical risk. The blocking of Russian banks' access to the Swift international payments system by the US and its Western allies in February 2022 served as a wake-up call for other nations. India, in particular, aims to establish a backup system where local bank accounts can transfer funds without relying on the dollar system. By partnering with banks and payment companies worldwide, India seeks to make UPI accessible to the Indian diaspora and tourists, prioritising countries with significant inward remittance flows. These efforts enable India to bypass international payments facilitated by American card networks like Visa and Mastercard, expanding UPI's reach and reducing dependence on existing financial networks.

While UPI has undeniable potential to replicate its success overseas, strategic planning and concerted efforts are required. But it won’t be an easy walk for it.

Srinath Sridharan is Author, Policy Researcher & Corporate advisor. Twitter: @ssmumbai. Views are personal, and do not represent the stand of this publication.