After Singapore, the Unified Payments Interface (UPI) can soon be used in France. Indians travelling to these countries can make rupee payments using the UPI. Ajay Ramanathan examines the advantages of using UPI and to what extent tourists and businessmen will favour using this mode over credit cards
How will a transnational UPI work?
International acceptance of the UPI can happen only if the payment operator in the home country has an arrangement with a similar payment operator in the overseas country. The National Payments Corporation of India (NPCI) has recently set up connectivity with Lyra of France. This is similar to the linkage between the NPCI and Singapore’s PayNow that had been set up earlier this year.
Within India, the chain of UPI transactions runs from the payer’s bank to the NPCI switch, and then to the payee’s bank, which could belong to an individual or a merchant. In Singapore, the route would include PayNow for UPI payments to work. Unlike domestic UPI transactions, the cross-border settlements will not be real-time.
How is the forex conversion taken care of?
For UPI transactions in Singapore, DBS provides an exchange rate to NPCI. NPCI adds a markup to the rate — decided in consultation with the NPCI committee (all leading banks of India are members). The rate and the markup are shown to the customer, and the transaction goes through only when the customer consents. The sending bank credits the total rupee amount (foreign currency*forex rate + markup) to NPCI’s settlement bank.
The NPCI’s settlement bank then instructs DBS to credit the merchant’s/beneficiary’s bank in Singapore dollars. NPCI shares a part of the markup with the sending bank, and all banks get the same share. This is unlike card payments, where the markup depends on the debit or credit card product being offered by banks, with lower markup (1-2% + GST) for premium cards and higher markups (3.5% + GST) for lower-end cards.
Can UPI help save on forex outflows?
Merchants overseas would want to be paid in the local currency. So, even if the Indian user pays in rupees, the final payment would be in the local currency. Consumers now use cash, credit/debit cards and pre-paid forex cards. For UPI to be a preferred mode of transaction, the exchange rate has to be competitive. On cross-border UPI, since banks will make money on fees, they may offer some rewards.
Overseas forays
While a start has been made with countries like France, Singapore and the UAE, the US market could be tough to crack, given the powerful credit card lobby. But, the UPI can someday integrate with FedNow, the UPI-like system in the US. It can also integrate with FPS in the UK.
As India teams up with payments operators and makes UPI available for Indians overseas, cross-border remittances is another area that UPI can disrupt, says Ranadurjay Talukdar, Partner and Payments Sector leader, EY India.
Will UPI payments catch on?
Credit cards, in most cases, attract a high fee — typically 3.5% plus GST — but consumers earn reward points on transactions and get access to several facilities. In fact, the fees are often lowered for select premium card products. But, say, in hawker markets in Singapore, where credit cards are not easily accepted, UPI payments could be an option for consumers.
UPI is certainly more convenient and safer than carrying foreign currency as cash. However, the value proposition for UPI needs to be significantly stronger before it becomes popular.
Cost of currency transaction: UPI versus credit card
One is not clear on whether the cost of the currency transaction in a UPI transaction will differ from that in a credit card transaction for France yet, but, for Singapore, DBS provides an exchange rate to NPCI and NPCI adds a markup. It would appear that the consumer is totally dependent on the rate that DBS provides. Some consumers may prefer to use a credit card especially if the forex rates are attractive and there are some add-on benefits.
Affluent users, especially corporate executives, may choose to continue to use credit-cards despite the costs.
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July 20, 2023 at 04:45AM
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Unified Payments Interface goes international - The Financial Express
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