India plans to take its model for digital payments global as online transactions thrive in an economy that is among the hardest hit by coronavirus.
Since it launched in 2016, India’s Unified Payments Interface has helped propel the growth of online payments in the country of 1.4bn people. The system allows people to make cheap, instant transfers across bank accounts and to pay for everything from groceries to online services.
Proponents say UPI has advanced financial inclusion in India, where hundreds of millions have historically gone without bank accounts. They argue UPI is more sophisticated than similar systems in richer countries.
It has also attracted a flurry of investment, with Google, Walmart-owned ecommerce start-up Flipkart and others launching applications layered on top of UPI.
The platform’s transaction volumes rose to a record 1.34bn in June as Covid-19 raged, prompting Indians to socially distance and avoid cash.
UPI is administered by the National Payments Corporation of India, set up by the central bank and owned by a consortium of local lenders.
Following the launch of a pilot in Singapore, the company said it has held preliminary talks with the Bank for International Settlements, the World Bank and the Bill & Melinda Gates Foundation to explore possible collaborations, said Dilip Asbe, chief executive of the NPCI.
He said UPI’s strength was its appeal across India’s fragmented economy, which ranges from wealthy consumers to poorer communities.
“The top end of the market behaves like the western world, and the bottom of the pyramid has similarities with developing or undeveloped economies,” Mr Asbe added. “The country has diverse needs. There are people in villages needing assistance payments. People in cities with a smartphone have different needs.”
UPI could also prove useful for transactions and remittances in countries with large Indian diasporas. NPCI set up its international subsidiary in April but Mr Asbe conceded that volumes in the Singapore pilot, aimed at Indians based in the south-east Asian country, had been limited due to travel restrictions. “It’s going to be a long-drawn process,” he said.
Neil Shah, an analyst at Counterpoint Research, said convincing other countries to accept UPI could also be difficult as governments would want the ability to scrutinise the infrastructure in order to build trust. “There’s a huge opportunity,” he said. “The challenge is obviously the trust part.”
UPI’s platforms, such as payment card scheme RuPay, have been championed in India as alternatives to Visa and Mastercard. The US companies have been targeted by Indian policies requiring them to stop transferring financial data out of the country.
India has promoted platforms such as UPI as part of a drive to accelerate financial inclusion among the large parts of the population long shut out of the banking system.
The proportion of Indians with a bank account rose from 35 per cent in 2011 to 80 per cent in 2017, according to BIS, above the global average.
But Mr Asbe cautioned that India’s accelerating coronavirus outbreak risked slowing digital payments growth if economic activity remained under pressure.
India has the world’s third-highest coronavirus count with more than 1.2m cases. Reported daily infections continue to accelerate.
“Obviously further growth will depend on how the Covid-19 situation emerges in the country,” he said.