If the linkage between UPI and PayNow is successful, it can be replicated in other countries, leading to network effects, greater trade and investment.
The reported pact between the central banks of India and Singapore to link their respective payment systems, Unified Payments Interface (UPI) and PayNow, to step up cross-border payments and remittance flows is commendable. Thefintechcooperation (after the two countries boosted interoperability using QR codes) will enable users to make instant, low-cost fund transfers while staying in their own system. Both UPI and PayNow enable people to transfer money from their accounts instantly at any time to another bank or e-wallet account in their respective countries using a mobile phone. Starting July next year, users in India will be able to transfer funds instantly to Singapore using a mobile phone number, while transfers can be made from Singapore to India via UPI virtual payment addresses.
The average global remittance cost, at around 5%, is prohibitive. An efficient real-time payment system offers the scope to lower the remittance cost to 2% per transaction. Rightly, the Bank for International Settlements has recommended collaboration between regulators to make remittances more efficient. PayNow has been linked to Thailand’s PromptPay. The RBI’s Payment Systems Vision 2021 document too has underscored the need to lower remittance cost. SWIFT, an international organisation, promoted electronic transfer of funds for decades.
Early systems were built on the then-available low-speed links with message switching systems. The UPI, a new-generation payment system, stands out for its open architecture and flexible user interface. If the linkage between UPI and PayNow is successful, it can be replicated in other countries (read: Financial Action Task Force-compliant jurisdictions), leading to network effects, greater trade and investment.