India’s State-Led Payment Network Is Growing. Now Nation Wants to Export It

A surge in e-commerce and declining cash use during the COVID-19 pandemic have strengthened India's state-run infrastructure for joint payments.
According to the National Payments Corporation of India (NPCI), the nation will have processed over $ 425 billion in trade by the end of this year. The United Payments Interface (UPI) umbrella organization is encouraged to export the model to other countries.
The payment interface was developed under government guidance and regulated by the country's central bank, the Reserve Bank of India. It started as part of the larger India Stack project, which brought together application programming interfaces (APIs) that could be used by public and private actors to build digital infrastructure.
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While UPI is one of the key uses of the stack, other services include a unique biometric ID system known as Aadhar and the electronic storage of documents.
UPI enables both digital payments and peer-to-peer transfers for 200 banks that are part of the network and for payment processors like GooglePay. In simple terms, UPI is similar to a personal digital wallet that allows you to access and move around money from bank accounts. E-commerce platforms such as Amazon and Flipkart have both integrated UPI so that residents can pay for goods directly through the platform.
This interoperability is an integral part of the National Payments Corporation of India's plan, the umbrella organization for UPI, to export the payment model.
"We have started connecting with people overseas and the response has been very positive," said Ritesh Shukla, CEO of NPCI's international expansion subsidiary, at a recent technology summit organized by Carnegie India and co-sponsored by the Indian Foreign Ministry. He added that the organization hopes to develop an international product similar to UPI in the next few years.
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Related Topics: India's government regulated digital payments network is dominated by Google and Walmart
While Shukla didn't name any countries involved in the discussions, Bhutan last month launched a debit card tied to a similar network.
According to Shukla, NPCI's export approach is likely to be two-pronged: it would help countries that don't have an existing payment system build one, while for countries that already have an existing payment network, NPCI would help them upgrade it until it does UPI is more similar in terms of interbank operability.
"You spoke earlier about whether there will ever be another M-Pesa in Kenya and that has the potential for me," said Victor Malu, Head of Future Financial Systems at FSD Kenya, during the conference.
M-Pesa was introduced by Kenyan telecommunications company Safaricom in 2007 and offered people an alternative way to send money using text messages. Considered one of the earlier steps towards financial inclusion through digitization, M-Pesa is similar to Venmo but does not require a bank account.
M-Pesa has around 24.5 million users in Kenya alone. At the same time, services such as M-Pesa and even bank accounts are company-specific and can represent hurdles if a user wants to move money from a mobile account to a bank account, for example.
Before UPI can go abroad, some issues need to be resolved. As the volume of digital payments in India spiked under COVID-19 restrictions, the network's servers felt the heat too. According to NPCI data, the State Bank of India (SBI), which processes the majority of UPI transactions, had a 5.31% failure rate for the 510 million transactions it processed in September. These errors were due to technical problems.
To keep UPI up and running when activity picks up, Indian banks will also need to upgrade their back-end infrastructure. The UPI system gives the banks little incentive to invest in improving the system, as they earn nothing with the mostly low ticket expenses that are made with the service.
Without an architecture to reliably process transactions and the lack of economic incentive for banks to set up transactions, the payment network could face adoption hurdles. If these issues are not corrected, they can also make it difficult for the NPCI to export the network.
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India's state-run payment network is growing. Now the nation wants to export it
India's state-run payment network is growing. Now the nation wants to export it
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