UPI-PayNow Linkage: A Flatter World With Fast Payments Integrating Globally

On Sept. 14, 2021, The Reserve Bank of India and the Monetary Authority of Singapore announced that India and Singapore are linking their fast payment systems – India’s Unified Payments Interface and Singapore’s PayNow. The service is targeted for operationalisation by July 2022.

This is a continuation of India’s strategy to lead the evolution of digital payments across the globe. With its UPI service as fast payment, India has already set the stage for leading payments innovations. Singapore, as a global fintech hub, drives multiple interesting initiatives across digital payments, crypto and blockchain. This collaboration is the best of what the two countries have to offer.

So far, fast payments have delivered an inter-operable system at the country level with seamless real-time money transfers from one bank account into another bank account. This all is set to change with the next level of innovation linking two countries’ banking systems inter-operating to enable the same real-time experience between consumers of two countries from one bank account in India and the other in Singapore and vice versa.

Global Remittance Market Set For Disruption

India is the largest inward global remittance market, as per World Bank data. The country received $83 billion in 2020, which was a little lesser than the previous year due to the Covid-19 pandemic and mostly due to a major drop from the United Arab Emirates. China is a distant second with $60 billion in remittances received.

Meanwhile, the top countries for outward remittance are the United States ($68 billion), UAE ($43 billion), Saudi Arabia ($34.5 billion), Switzerland ($27.9 billion), Germany ($22 billion), and China ($18 billion).

While the India-Singapore corridor is not amongst the largest by the flow of remittances, advancement in payments technology and innovation has kept India and Singapore on top of the Fintech Innovation list. This new initiative by both countries is set to disrupt this huge market as a possible new way of sending money from one country to another using fast payment rails of both countries.

Customer Issues with Current System

The current global remittance system has issues as regards consumer experience. There has been some innovation driven by a few fintech firms focussed on aspects of ‘time and cost’, however, a lot still needs to be done on the overall consumer experience.

There is huge scope of improvement on the following aspects:

• Time: Around 1-7 days taken to reach money to beneficiaries;

• On-boarding process: Extensive customer on-boarding process for sender and receiver in terms of Know Your Customer/Anti-Money Laundering even for low-value transfers;

• Forex conversion: High cost for foreign exchange conversion at sending and/or receiving location;

• Transparency: Overall transparency in terms of progress of transaction; and

• Overall costs.

Enhanced Customer Experience: Key To Disruption

Auto-onboarding

Based on the joint circular issued, it is envisaging that consumers of existing and authorised regulated entities for international remittance would not need to re-onboard their customers in India or Singapore. This could be extremely important as a lot of time, effort cost, and paperwork like KYC documents, etc. are involved when the consumer has to use any international remittance service to send or receive money. An automatically available system or this seamless access to existing consumers of banks and other RBI-authorised entities where customers are already onboarded with the appropriate process could be an amazing experience to deliver and bring in at par with the UPI experience.

Instant Fund Transfer

Currently, there is no arrangement where two different currencies are involved and the money transfer between two countries is still instant. Delivering UPI/IMPS equivalent experience here for instant funds sighting in the receiver’s account simultaneous to the debit in the sender’s account would be magical. This would be a game-changer in the international remittance market. To achieve this between consumers is relatively easy, but RBI and MAS as regulators as well as National Payments Corp. of India and PayNow as the fast payment rails would need to put together an elaborate solution and mechanism to ensure settlement finality between banks in two different countries without any risks. This would be the core of the solution and could lead to multiple innovations in all adjacent areas like payments and other financial services over time. This would also be the key enabler for financial inclusion and could benefit beneficiaries in dire needs due to emergencies.

Low-cost

The current solution cost structure varies a lot by type of service (bank account to bank account, cash to cash, bank account to cash) as based on the same, multiple parties may be involved. The major impact here would be on the bank account to bank account segment which is approximately 30-40% of the current retail remittance market. The oversight by regulators on both sides would ensure clarity on pricing on a total cost of transaction concept and eliminate a situation where there is a lack of clarity as to how sender and receivers are charged in different models. The overall solution and technology have the potential to disrupt the cost by at least 20-30%, and much more for low-value remittance, at 30-40%.

Transparency

The new solution can be a lot more transparent as well as consumer-led especially in terms of forex conversion. Key aspects like who converts, at what price, and when, all can be driven by consumers. All these aspects are not transparent in the current system and lead to high cost as well as high dissatisfaction. This new solution can bring the desired transparency and full control at the sender and/or receiver ends, as desired by them.

Key Success Factors For Proposed System

Seamless access: The availability of this service to all consumers of regulated and entities permitted to do remittance services without any additional paperwork and/or process up to a pre-defined limit.

Instant and successful: Instant is good but it is critical that a very high transaction success rate is maintained unlike the current experience in terms of the success rate of faster payments.

Transparent exchange rates: The holy grail of the entire process, and this can enable a customer to be in charge of ‘who, when, and at what rate’ conversion is done and at a reasonable fee for conversion.

Sustainable, low cost: A low and reasonable cost to the consumer is desired and ideally achieved by creating the appropriate market environment and eventually a market-led sustainable pricing structure. This should not be susceptible to pricing intervention or zero-MDR type regime by regulators or other policymakers as long as the reasonability principle is maintained.

Customer grievance management: In case of any issues, an instant customer grievance redressal solution is just as critical as the instant transfer is. The current experience in the fast payments has some challenges when resolving grievances due to the multiple parties involved, even when all parties are present in the same country but using different solutions at the individual entity level. Such services with the scope of multiple countries need to address customer grievance matters even with more caution.

Conclusion

This is a game-changing initiative that is likely to rewrite rules of international remittance markets and a timely response to other innovative solutions in space of private crypto assets that may otherwise gain importance over the existing inefficient solution. This development would be watched and monitored by the larger sender and receiver countries’ regulators and are likely to follow suit with India leading from the front.

Navin Surya is Chairman of the FinTech Convergence Council, and Chairman Emeritus of the Payments Council of India. Views are personal.

The views expressed here are those of the author, and do not necessarily represent the views of BloombergQuint or its editorial team.