India has emerged as a global leader in digital payment transactions, surpassing the United States, China, and Europe combined. This remarkable achievement is largely attributed to the Unified Payments Interface (UPI) introduced by the National Payments Corporation of India (NPCI) in 2016. With its robust infrastructure and secure authentication measures, UPI has gained the trust of millions of users, making it the preferred mode of payment in India. Now, India is taking steps to extend the reach of UPI beyond its borders and establish it as a global payment system.
India’s Initiatives
The NPCI, a non-profit organization established by the Reserve Bank of India (RBI), has been at the forefront of enabling cross-border and international UPI payment facilities. Here are some key initiatives undertaken by India in this regard:
1. UPI Global
In a bid to promote cross-border UPI transactions, the NPCI mandated that all stakeholders, including member banks and third-party application providers, offer UPI Global by December 31, 2021. PhonePe became the first Indian fintech company to support cross-border UPI payments, allowing users to make payments through their Indian bank accounts to merchants in the UAE, Singapore, Mauritius, Nepal, and Bhutan. Paytm has also announced plans to launch support for UPI Global payments.
2. UPI for Non-Resident Indians
To facilitate UPI transactions for non-resident Indians (NRIs), the NPCI allowed non-resident accounts, such as Non-Resident External (NRE) and Non-Resident Ordinary (NRO) accounts with international mobile numbers, to be onboarded and transacted using UPI. Initially, mobile numbers from ten countries, including the United States, the United Kingdom, Singapore, and Canada, were permitted. The responsibility of compliance with foreign exchange laws and RBI guidelines lies with member banks, while anti-money laundering compliance is the responsibility of the remitter and beneficiary banks.
3. UPI for Foreign Travellers in India
The RBI amended the Prepaid Payment Instruments (PPI) Master Directions in February 2023, allowing the issuance of INR-denominated full-KYC PPIs to foreign nationals and NRIs visiting India. This enables inbound travellers from G20 countries to avail UPI facilities through PPIs issued to them. ICICI Bank, IDFC First Bank, Pine Labs Private Limited, and Transcorp International Limited currently offer UPI-linked wallets for travellers. These traveller PPIs can only be loaded or reloaded with foreign currency, and the outstanding amount cannot exceed INR 200,000 at any given time.
Bilateral Initiatives
India has entered into partnerships with several countries to enable seamless cross-border payments using UPI. Let’s explore some of these initiatives:
1. Singapore
Singapore has been actively promoting its Payments Roadmap, which includes initiatives such as common QR codes and unified points of sale. In September 2021, the RBI and the Monetary Authority of Singapore announced the linkage of their fast payment systems, UPI and PayNow, respectively. This allows fund transfers between users in India and Singapore using mobile phone numbers and UPI virtual payment addresses. Peer-to-peer transactions and peer-to-merchant transactions are now possible between the two countries, with select merchants in Singapore accepting UPI payments through BHIM, the mobile payment app developed by NPCI.
2. UAE
India has collaborated with various institutions in the UAE to enable UPI payments. Mashreq Bank’s subsidiary NeoPay and Network International are among the entities that accept UPI transactions at merchant stores and points of sale in the UAE. This facilitates peer-to-merchant payments for Indians residing in the UAE.
3. UK
The UK has its own real-time payment system called the Faster Payment System (FPS). To enable UPI acceptance in the UK, the NPCI signed a memorandum of understanding with PayXpert. This collaboration allows Indian bank account holders to use UPI through PayXpert’s point-of-sale devices for in-store payments, including UPI-based QR code payments.
4. Bhutan, Nepal, and Beyond
India has also extended its UPI services to neighbouring countries like Bhutan and Nepal. Bhutan was the first country to adopt UPI standards for its QR code deployment, while Nepal embraced UPI for digital transactions in February 2022. The NPCI aims to collaborate with at least 30 more countries, including Australia and France, to further expand cross-border UPI transactions.
Legal Considerations
While UPI’s cross-border expansion holds immense potential, certain legal considerations must be addressed. Here are two key aspects:
1. Data Storage
The RBI has mandated that all payment system providers and banks store data relating to payment systems operated by them only in India. However, for the foreign leg of the transaction, data may be temporarily stored outside India but must be brought back to India within 24 hours. This regulation ensures the security and integrity of payment transactions while complying with data protection guidelines.
2. Foreign Exchange Control
Under the Foreign Exchange Management Act (FEMA), UPI cross-border transactions are likely to fall under the category of current account transactions. These transactions are subject to the Liberalised Remittance Scheme (LRS) limit of USD 250,000 per financial year for resident individuals. While most UPI cross-border transactions are permitted under the LRS limit, certain prohibited transactions require prior approval from the Government of India.
Conclusion
The expansion of UPI beyond India’s borders represents a significant milestone in its journey towards becoming a global payment system. The initiatives undertaken by India, along with partnerships with various countries, have paved the way for seamless cross-border UPI transactions. With its low costs and secure mechanism, UPI holds immense potential for countries looking to establish a digital financial infrastructure and build a globally integrated digital economy. As UPI continues to evolve and expand, it has the power to transform the way cross-border transactions are conducted, benefiting individuals, businesses, and economies worldwide.
