Linking UPI with Singapore’s PayNow is just the first step

   2023-03-16 17:03

Almost 15 months after they first announced it, India and Singapore now have a system in place for the instant transfer of funds between people in the two countries. This is a significant marker in the policy map of both the Reserve Bank of India (RBI) and the government, which aim to take India’s digital payment systems global. It appears to be timed well, coming as it does on the eve of the meeting of finance ministers and central bank governors of the G20 in Bengaluru, where India is set to showcase its digital public infrastructure.



The linking of India’s United Payment Interface (UPI) and Singapore’s PayNow will help Indians transfer up to 60,000 (about 1,000 Singaporean dollars) a day to people in the island state quickly and easily, marking a major lowering of costs. These may be low-ticket transactions (for now) but will nonetheless benefit several hundred Indian migrants and students, and tourists from both countries.

As the system stabilises and settlement becomes smoother, the limits on transfers and remittances are bound to be raised. The number of banks and other institutions involved will also increase.

Currently, fund transfers carried out through banks take a day or two, and there is a cost to it given the conversion of currencies. It does help that the digital payments systems of India and Singapore are interoperable, and that QR code-based payments are already a reality in Singapore and in India’s neighbourhood, albeit to a limited extent. This has been done through UPI, with the push being led by a new international subsidiary of the National Payments Corporation of India (NPCI), an initiative of the RBI and various Indian banks.

The obvious next step for the NPCI, the RBI and the government will be to forge similar links with other countries, especially those with a large Indian diaspora. The potential is immense, with India being the top country for foreign inward remittances (close to $90 billion in FY22). Singapore is one of the top five countries for remittances to India. The challenge next will be to tie up with digital payment players in the US, the Gulf and the UK, which account for a good chunk of these remittances.

That’s where capital controls and a convertible currency count, and where India has much ground to cover. There are also concerns about money laundering and cyber fraud that must be addressed before similar cross-border digital payment links are finalised.

A central bank digital currency (CBDC) is seen as the most efficient way of making cross-border payments as it would have low costs and involve minimal risk. As CBDCs – which are being tested in a few countries, including India – gain acceptance, cross-border digital payments should become smoother.

Importantly, the digital payment infrastructure that India has developed offers the country a great opportunity to leverage its fintech capabilities and push for leadership in this area, boosted by the Indian central bank’s regulatory learnings.

From a broader, strategic perspective, the creation of bilateral links for payment systems and the emergence of new digital payment solutions in India points to the potential of alternative cross-border payment mechanisms. The weaponisation of economic sanctions, as seen in the freezing of the Russian central bank’s assets, makes it imperative to build on the gains made by India’s robust payment systems and create a fall-back option for use in the next global crisis.

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