The Reserve Bank of India (RBI) and the Monetary Authority Singapore (MAS) recently announced the UPI-PayNow linkage – the real-time payment system linkage between India’s Unified Payments Interface (UPI) and its equivalent network of Singapore, PayNow. This is the first such linkage for India which is the world's biggest recipient of remittances. Transfers of funds between the two countries will now be possible using just mobile phones due to the tie-up.

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Let’s decode how this tie-up will benefit the Indian economy.  

The tie-up will benefit the Indian economy on three major grounds: a) Helping India becoming more integral to globalised economy, b) Supporting the fintech ecosystem, c) Better foreign remittance, and many more.

 

1.       Path to globalized economy through e-commerce initiatives  

 

The adoption of UPI has spiked so much that UPI transactions value stood at Rs 12.82 lakh crore in 2022, showed government data.  

“The cross-border payments channels are the lifeblood of the globalized economy, facilitating the expansion of global e-commerce, the rise of international supply chains, and billions of dollars in annual remittances sent by migrant workers,” Mansi Gupta, a researcher at the Centre for Financial Innovation (CFI) at SPJIMR, said.

Experts from the fintech sector suggest that will also help in boosting trade and investment between India and Singapore as businesses can now transact with each other more efficiently. 

 “UPI will first go to Singapore, which is occasionally described as the financial hub of the world, to attempt to reach overseas markets. The decision to allow the UPI to be used to move money across international borders will considerably improve the Indian economy and make overseas trade simpler and more pleasant,” Manan Dixit, founder, FidyPay, an API Banking Solutions company, said.

Experts also suggest that this new connection will empower businesses and individuals with frictionless transactions beyond borders, making international commerce more accessible and convenient than ever before.

“The winds of the e-commerce world are truly beginning to change with immense innovation, and this collaborative launch is a testament to it. Businesses also face five major challenges such as cost, security, time, liquidity & transparency while making cross-border payments. This initiative will further solve most of these problems allowing more businesses to expand their reach in other markets,” Chirag Taneja, co-founder and CEO, of Gokwik, a platform for solving shopping experience problems on e-commerce websites on the internet, said.

 

2.       Better foreign remittance  

 

During 2021-22, India received foreign inward remittances of $89,127 million which was the highest ever inward remittances received in a single year, MoS for Finance Pankaj Chaudhary said in a written reply to a question in Rajya Sabha on February 7.

The UPI-PayNow interlinking will further anchor trade, travel and remittance flows between the two countries and lower the cost of cross-border remittances. The tie-up will significantly boost remittances to India, thereby creating an impact on the economy, Ankur Mittal, co-founder, Inflection Point Ventures, a startup investing platform, said.

 

3. Boost to MSME sector

 

Finance Minister Nirmala Sitharaman the Budget proposed a special focus on the Micro, Small, and Medium Enterprises (MSMEs) sector. She announced a revamped credit guarantee scheme to provide MSMEs with more collateral-free credit and also introduced tax exemptions, better connectivity to boost MSME sector in tier 2 and tier 3 cities.

Bhagwat Karad, MoS Finance, said in an exclusively interview with Zee Business that the sector could generate nearly 6 crore jobs and be the backbone of the Indian economy.

According to experts from the fintech sector, this payment connectivity comes as an advantage to small businesses and enterprises, as it will streamline faster and easier cross-border transactions.

“This tie-up will enhance international payments with multi-currency support, so it will lead to improved business volumes for SMEs by facilitating overseas payments and thereby, enables businesses to expand globally,” Ankur Mittal said.

 

4.       Faster growth in the fintech ecosystem

 

According to a report released by the Australia-India Council in December 2021, fintech industry is forecast to create 21 million new jobs and bring $950bn to India's economy by 2025. According to Ernst & Young, the most widely adopted fintech category among consumers was money transfer and payment services.

The UPI-PayNow linkage is likely to drive further innovation, development and further growth and expansion of the fintech platforms, as new features and services are added to meet the needs of users, believe many industry experts.  

“This initiative will ultimately enable India to become the Fintech ecosystem with the fastest growth rate for innovation and development. Shortly, non-resident Indians (NRIs) who have bank accounts in India but live abroad will be allowed to use UPI platforms using their foreign cell numbers. Indian non-residents who previously had problems transferring money into the country will profit from the expansion of UPI into overseas markets,” Dixit of FidyPay said.