In payments, like geopolitics, India seeks a third way

Indian policy makers believe that the UPI and elements of 'digital public infrastructure' are one of their biggest recent innovations

By Mihir Sharma

Last week, the Singaporean and Indian central banks unveiled a new system for cross-border cash transfers that, in New Delhi at least, was celebrated as something much more: the first step toward establishing an entirely new global payments system geared to the needs of the developing world. India’s Unified Payments Interface, or UPI, tied up with PayNow — run by a consortium of Singaporean banks — to provide what Singaporean Prime Minister Lee Hsien Loong described as “cross-border, real-time system linkage” with “cloud-based infrastructure.”

Indian policy makers believe that the UPI and allied elements of what it calls “digital public infrastructure” are one of their biggest recent innovations. The UPI serves as a platform that banks, non-banking financial corporations, and fintech apps can all use on an equal footing. While the Reserve Bank of India essentially runs it alongside a consortium of banks, the state has a big say in how it operates.

Like most other payments systems based on a national ID database or cheap mobile-number-linked bank accounts, the UPI is very easy to use. Crucially, the system also separates a user’s UPI interface from where she has her account. You can sign up for a UPI app run by anyone, while having a bank account elsewhere.

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You don’t have to remember your account and routing number, either, if you have linked a mobile phone number to your bank account. Changing your chosen UPI app is thus incredibly easy; you can do it in seconds.

The government has also, controversially, required that nobody be charged for using the UPI. This means that companies are constantly innovating and competing to provide a cheaper and more effective interface. (The current market leader is PhonePe, owned by Walmart.)

Indian policy makers believe this system makes it hard for companies to use network effects to build a permanent monopoly — a danger in places such as the US — while still leaving more room for profits and innovation than one might find in, say, China. They are hoping to tout this third way while they hold the G-20 presidency this year.

India is now attempting to establish similar publicly owned or highly regulated platforms in various other domains — from online shopping to lending to digital healthcare. In each case, records required for authentication such as ID documents, tax statements and certificates are stored in the cloud. Access to this private data can be temporarily granted and revoked by users. Meanwhile, making it easy to switch between different user experiences based on cost and usability is prioritized.

The next step is to export this system more widely. India’s tech czars look forward to a time when the UPI and other such Indian platforms link up with counterparts in the emerging world, to create a bottom-up network for small cross-border payments. The hope is to connect small- and medium-sized enterprises in these countries to their customers and suppliers, and to cut out traditional banks’ role in financing these transactions. Since India is the biggest destination for remittances, other payments networks have a clear incentive to partner with the UPI.

Still, India will have to move swiftly. Singapore’s Lee took care to point out that this was the second agreement that Paynow had signed, the first being with Thailand’s PromptPay, which is owned not just by a coalition of banks but also Mastercard’s Vocalink. The Association of Southeast Asian Nations already has a policy framework in place for regionwide digital payments.

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Other developing countries are also upgrading their payments systems. Brazil, the next G-20 chair, will want to push its PIX system, which doesn’t regulate merchant fees and thus may be more sustainable in the long term. Like the UPI, however, it’s open to multiple participants — and has been adopted much faster than its more closed rivals in Latin America, such as Mexico’s CoDi.

Setting up decentralized cross-border payments systems will be fiendishly difficult if every national platform has mutually incomprehensible data formats and processes. The Indian and Singaporean authorities hope that harmonized rules and obligations for instant payments systems — what they call the “Nexus network” — will overcome that problem.

Streamlining rules and regulations to support global trade and investment is exactly what countries such as India and Brazil hope the G-20 can do. If they can use their presidencies to establish shared norms for digital public infrastructure, they will be able to count the terms as rare successes.