Indians can benefit from using UPI abroad. But there are some gaps that you have to keep in mind

News of France agreeing to allow the use of the Unified Payments Interface, or UPI, in its territory has brought cheer to many here. The National Payments Corporation of India is in talks with several other countries, too, to enable UPI payments in their respective jurisdictions.  

Adhil Shetty, CEO of BankBabazaar.com, said, “There will be more operational clarity once the implementation gets underway, but broadly there will be two benefits: Indians abroad will be able to make UPI payments from their Indian bank accounts linked to their international mobile numbers, and Indians travelling abroad will be able to make forex payments via UPI where available.”  

How UPI will work internationally: To initiate an international UPI transaction, the user must have a UPI-enabled mobile application linked to their bank accounts in India. For transactions, the first step is to convert the transaction amount from the source currency (e.g., INR) to the destination currency (USD, for example). The issuing bank authorises the transaction to facilitate the conversion as per the regulatory compliance of both countries. The authorisation takes place with the help of intermediaries involved in cross-border transactions. The payee’s bank (overseas bank) receives the authorisation and verifies the transaction details. However, this process may involve multiple banks and systems depending on the country and agreements India has with them.  

France is now part of a growing list of countries where users can register for UPI linked to their non-resident external accounts for payments in India, including the United States, UAE or Saudi Arabia, and Singapore. 

Treasury missing: The bilateral tip-up with France and other nations like Singapore, UAE, etc., is an important step in taking UPI global. “Today, a significant part of payment network revenues come from cross-border transactions. So, it can be a threat to international card networks if UPI’s global acceptance keeps growing. [But] unlike Visa and Mastercard, which have a treasury that helps process cross-border transactions at competitive rates, the NPCI doesn’t yet have a treasury of its own. The underlying transactions are still happening via bank-to-bank cross-border transfers through conventional means. Therefore, for UPI to be successful, NPCI should have its own treasury to compete directly with international networks on cross-border payment acceptance. There is also scope to use blockchain technology and bilateral CBDC tie-ups to process cross-border UPI transactions, which will provide NPCI with a competitive edge,” said Ranadurjay Talukdar, Partner and Payments Sector Leader, EY LLP India. 

If a customer uses a Visa card for say $100, s/he pays about Rs 8,730, including Visa treasury rate and forex mark-up levied by the issuer bank and Visa. For UPI’s acceptance to increase, the rates have to be competitive, which can be achieved by setting up NPCI’s own treasury, providing competitive cross-border rates and looking at a differentiated forex mark-up regime, explains Talukdar. 

So in the current scenario, if the international transaction involves a currency conversion, the UPI app will use the prevailing exchange rate to convert the amount from the user’s home currency to the destination currency.  

Talukdar said, "For India, treasury banks are Bank of America for Visa, Bank of India for Mastercard and SBI for NPCI. One should know that card networks cant themselves have a treasury, as they are not banks. They will always need to tie up with a bank. Visa has a treasury team that works back with their banks and provides direct quotes to acquirers and issuers. Currently, that is the big capability NPCI lacks."

Shetty says, “The forex transactions will have additional transaction charges and currency conversion fees associated with international forex transactions. So, it’s important to note that the exact charges and fees for international UPI transactions may vary depending on the banks, payment service providers, and regulatory guidelines in place.” There will be further clarity once this is operationalised.  

“The app may provide real-time exchange rates sourced from reliable financial institutions or use a fixed rate set by the user’s bank. The converted amount is displayed to the user before confirming the transaction,” said Amit Gupta, Managing Director at SAG Infotech. Thus, the UPI may not be able to compete with international networks at this moment. 

At present, India has UPI tie-ups internationally to transfer money with countries including Singapore, the US, Australia, Canada, Hong Kong, Oman, Qatar, Saudi Arabia, UAE and the UK. The Indian government aims to bring all G20 countries on board to enable international UPI payments. NRIs will have to link their mobile numbers with NRO or NRE accounts to activate UPI with international mobile numbers. 

“It’s important to note that the availability and functionality of international UPI transactions may vary across different UPI apps and banks. Some banks and apps may have specific tie-ups with international banking partners, while others may have limitations or restrictions on certain countries or transaction types. Therefore, users should check with their respective banks or UPI app providers for detailed information on international UPI transactions,” said Gupta.