Payment Gateway India - Cross Border Transactions with UPI, India's Unified Payment Interface: Connecting India to the World

　　Cross-border transactions with UPI, India's Unified Payment Interface: connecting India to the world

　　In recent years, India has become the country with the highest number of digital payment transactions. Last year, the number of digital payment transactions in India surpassed that of the US, China and Europe combined. This is thanks to UPI, India's Unified Payments Interface, which was launched by the National Payments Corporation of India (NPCI) about seven years ago on 11 April 2016.Every month, the number of UPI transactions exceeds that of the previous month. According to NPCI, in May 2023, the total number of UPI transactions per month reached a record 9.4 billion, with a record value of INR 14.89 trillion (~US$181 billion).

　　India has emerged as a global leader in digital payments thanks to its strong technological infrastructure and timely regulatory intervention. As UPI enables instant mobile-to-mobile payments almost free of cost, millions of people have adopted it as their primary mode of payment. Every UPI transaction requires access to any UPI application using dual authentication, password or PIN to confirm the transaction. As a result, UPI has become a highly secure payment mechanism that has earned the trust of its users.

　　In recent years, India has taken various initiatives to extend UPI coverage beyond its borders and make it a truly global payment system. The rest of the article focuses on some of the positive steps taken by India and various countries in terms of cross-border and international UPI payment facilities.

　　India's initiative

　　NPCI is a not-for-profit umbrella organisation set up by the Reserve Bank of India (RBI) to operate retail payment and settlement systems in India. Since 2020, NPCI has taken several steps to make UPI globally available for international peer-to-peer and merchant payments.

　　UPI Global

　　The National Payments Corporation of India (NPCI) requires all stakeholders (i.e., member banks, third-party application providers, and other payment providers) to make UPI Global available by 31 December 2021.While the timeline has been extended to 30 September 2022 to accommodate other members that have not yet implemented the functionality at the issuer and UPI application level,5 the National Payments Corporation (NPCI) has not yet approved a further extension.PhonePe is the first Indian fintech company to support cross-border UPI payments. PhonePe users can make payments to merchants through their Indian bank accounts at merchant outlets or points of sale in the UAE, Singapore, Mauritius, Nepal and Bhutan.Paytm has also announced that it will launch support for UPI Global payments.

　　UPI for Non-Resident Indians

　　As per the circular issued by NPCI on 10th January 2023, Non-Resident Accounts (e.g. Non-Resident External (NRE) Accounts and Non-Resident Regular (NRO) Accounts) with international mobile numbers will be allowed to enroll and transact using UPI. To begin with, mobile numbers from the following ten countries are allowed - USA, UK, Singapore, Canada, Australia, Oman, Qatar, UAE, Saudi Arabia and Hong Kong. Compliance with foreign exchange laws and RBI guidelines is the responsibility of the member bank and anti-money laundering compliance is the responsibility of the remitter and the recipient bank.

　　UPI for foreign travellers in India

　　The Reserve Bank of India's Main Directions (PPI MD) on Prepaid Payment Instruments (PPI) were revised in February 2023 to provide for the issue of PPI to foreign nationals and Non-Resident Indians (NRIs) visiting India (collectively referred to as "travellers"). Providing for the issuance of PPI to foreign nationals and non-resident Indians (NRIs) visiting India (collectively referred to as 'travellers'), the PPI MD states that full KYC PPIs denominated in Indian rupees can be issued to travellers, initially starting with travellers from G20 countries to India. The UPI facility is available to travellers entering India through the PPI issued to them. To begin with, this facility has been made available to inbound travellers from G20 countries for making merchant payments at select international airports (New Delhi, Mumbai and Bengaluru airports). Currently, ICICI Bank, IDFC First Bank and two non-banking issuers, Pine Labs Private Limited and Transcorp International Limited, issue UPI-linked wallets. In February 2023, EbixCash became the first entity to offer UPI services to travellers in the pilot phase.

　　Traveller PPIs are issued in the form of an e-wallet linked to UPI, after physical verification of the traveller's passport and visa. Traveller PPI can only be recharged/recharged upon receipt of cash or foreign currency in any other payment instrument and Traveller PPI can only be used for merchant payments. The outstanding amount of Traveller PPI cannot exceed INR 200,000 at any time.

　　Bilateral initiatives

　　Several digital economies including the UK, Singapore and UAE have partnered with NPCI India through NPCI International Payments Limited ("NIPL"), a wholly owned subsidiary of NPCI India. The partnership aims to provide seamless cross-border payments, enabling Indians to use UPI for real-time peer-to-peer and merchant transactions in Singapore and real-time peer-to-merchant transactions in the UK and UAE.

　　Singaporean

　　Singapore has been actively promoting its payments roadmap, which covers initiatives such as universal QR codes for accepting payments, unified point of sale and PayNow.

　　The Reserve Bank of India and the Monetary Authority of Singapore announced in September 2021 that they will be linking their fast payment systems, UPI and PayNow, respectively. Chia Ling Koh, Managing Director of Osborne Clarke Singapore, said: "UPI-PayNow is currently provided by DBS Bank and Liquid Group, a non-banking UPI-PayNow is currently offered by DBS Bank and Liquid Group, a non-bank payment organisation. The Monetary Authority of Singapore (MAS) has been in the process of issuing non-bank payment institution licences under the relatively new Payment Services Act. There is no doubt that the payment services market in Singapore is becoming increasingly competitive."

　　The UPI-PayNow connection should enable fund transfers between users in India and users in Singapore. Indian users can transfer funds to Singaporean users using their mobile phone numbers and Singaporean users can transfer funds to India using the UPI virtual payment address. In addition, Indian users visiting or residing in Singapore can use their bank's UPI app to make payments to Singapore merchants.

　　peer-to-peer trading

　　UPI-PayNow link to be operational by February 2023 Account holders of participating banks and financial institutions in Singapore and India will be able to conduct cross-border remittance transactions through UPI and PayNow. As per RBI's FAQs on the UPI-PayNow link, six Indian banks can currently receive remittances through the link and four Indian banks can currently send remittances. The FAQ lists the applications and platforms offered by the said banks, which can be used as long as the user's UPI ID is registered with the bank. Two participating entities in Singapore are responsible for receiving and sending remittances.

　　The daily transaction limit is INR 60,000 (approx. SGD 1,000) and is currently permitted only for peer-to-peer remittances for maintenance of relatives abroad and gifts. The Reserve Bank of India's Liberty Remittance Scheme (LRS) has a limit of $250,000 per person per financial year.P2M transactions are not yet enabled through a link. The link allows real-time transactions, similar to domestic UPI transactions.

　　Users should be able to start using this feature when participating banks roll out the update in their respective UPI apps. As of June 2023, we were unable to find payment and collection functionality on some of the listed apps.

　　P2P (point-to-market) transactions

　　For point to merchant transactions, UPI is accepted by select merchants in Singapore through BHIM, a mobile payment application developed by NPCI based on the underlying UPI infrastructure.BHIM is linked to PayNow and Indian users in Singapore can make payments using BHIM UPI by scanning a QR code at select merchants in Singapore. Indians can make cross-border merchant payments through PayNow using the UPI functionality on the following banking apps: City Union Bank, UCO Bank, Bank of Baroda and Punjab & Sindh Bank. at the time of payment, the BHIM app automatically converts the amount from SGD to INR and displays it for Indian payer's reference. The transaction rate for using UPI (via NETS QR code) at merchants is 1.8% of the transaction value.

　　UAE

　　NIPL has partnered with various organisations in the UAE such as NeoPay, a subsidiary of Mashreq Bank, the Arab Monetary Fund through Buna, a cross-border payment system, and Network International, an organisation that supports digital commerce in the MENA region. these collaborations are aimed at helping to implement a payment solution that is interoperable with UPI and help Indians make payments to merchants in the UAE seamlessly. neoPay has started accepting payments through BHIM UPI. and help Indians make seamless payments to merchants in the UAE.NeoPay has started accepting payments through BHIM UPI at NeoPay-enabled shops and merchant outlets. Additionally, PhonePe has enabled UPI transactions at merchant shops and point of sale in the UAE. This will help Indians in the UAE to make point to merchant payments.

　　United Kingdom of Great Britain and Northern Ireland

　　The UK has set up the Fast Payment System (FPS), involving private payment startups, to enable real-time payments up to £1 million online or through phone banking.25 NIPL has signed a Memorandum of Understanding (MoU) with PayXpert to enable the acceptance of UPI in the UK. The partnership aims to enable Indian bank account holders to make in-store payments using UPI through PayXpert's point-of-sale devices in the UK, including through UPI-based QR codes. The partnership is expected to provide Indian travellers with a familiar and convenient way to pay in the UK.

　　Bhutan, Nepal ...... and the rest of the world

　　In a similar endeavour, NPCI was an early partner with Bhutan, which was the first country to deploy QR codes using the UPI standard and the first to accept mobile payments through BHIM.

　　In addition, in furtherance of India's Neighbourhood First policy, Nepal adopted UPI for digital transactions in February 2022.NIPL has joined hands with Gateway Payments Service and Manam Infotech to provide peer-to-peer and merchant payment services in Nepal.PhonePe has now enabled peer-to-peer and merchant payments through UPI in Nepal and Bhutan. PhonePe is currently implementing peer-to-peer and merchant payments through UPI in Nepal and Bhutan.

　　NIPL is also eyeing partnerships with global private fintech companies. It has joined hands with TerraPay, a global payments infrastructure company, to sign an MoU to allow Indian residents with UPI IDs to receive real-time international payments through TerraPay. NIPL signed a similar MoU with PPRO to provide RuPay card and UPI acceptance services among PPRO's global customers such as Payment Service Providers (PSPs) and global merchant acquirers.

　　NPCI is currently working on cross-border transactions with several other countries. It aims to work with at least 30 countries, including Australia and France. The extremely low cost and secure mechanisms for conducting UPI-based digital transactions may also benefit many developing countries, as they aspire to build digital financial infrastructures to create a globally integrated digital economy.

　　Legal considerations

　　data storage

　　The Reserve Bank of India's circular on "Storage of Payment System Data" dated 6 April 2018 (the "DL Circular") recognises the security measures required for digital payments. The Circular states that all payment system providers and banks must store data related to the payment systems they operate only within India. Complete end-to-end transaction details should be part of the stored data. For the foreign portion of the transaction, the data can be stored abroad.

　　In addition, the processing of payment transactions can take place outside India.

　　in which case the data may be stored outside India during that time, but only in India after processing.

　　If the processing is done outside India, the data shall be deleted from the foreign system and brought back to India not later than 1 working day or 24 hours, whichever is earlier, after the payment has been processed.

　　If subsequent activities (e.g. settlement processing after payment processing) are carried out outside India, they should be carried out in real time and data should only be stored in India during this process, and

　　If there is any other related processing activity (e.g. refunds, etc.), the data can be accessed at any time from India where it is stored.

　　Although the DL Circular does not specifically mention UPI in its scope, the DL Circular should apply to cross-border UPI transactions. This is because NPCI is an RBI authorised Retail Payments Organisation and the DL Circular should be applicable to NPCI as well as bank members that are part of NPCI and process UPI transactions. In May 2020, the National Payments Corporation of India (NPCI) has implemented the Foreign Exchange Management Circular (FEMC) for all Digital Payment Platform (DPP) members requiring them to submit system audit reports to demonstrate compliance with the FEMC.

　　exchange control

　　In India, all transactions involving foreign currencies are governed by the Foreign Exchange Management Act, 1999 ("FEMA"), which treats "capital account transactions" separately from "current account transactions". FEMA treats "capital account transactions" separately from "current account transactions". Under Section 2(i) of FEMA, current account transactions include "amounts payable in connection with foreign trade, other current operations, services, and short-term banking and credit facilities in the ordinary course of business" and "remittances for the maintenance of parents, spouses, and children residing abroad". "UPI transactions are typically used for the purchase of goods, services, or peer-to-peer payments, rather than for the purchase of assets such as real estate. Therefore, peer-to-peer and merchant UPI Global transactions may be current account transactions.

　　UPI Global transactions will be subject to the LRS limit of USD 250,000 per financial year for resident individuals and shall not be exempted from this limit unless expressly exempted by the amendments to the Foreign Exchange Management (Current Account Transactions) Rules, 2000 ("Current Account Rules"). For example, the previous Rule 7 of the Current Account Rules provided that cardholders were not required to obtain prior approval from the Reserve Bank of India for international credit card transactions made outside India and excluded such transactions from the LRS limit. In May 2023, this rule was cancelled through an amendment.

　　Though the NPCI circular does not place any restriction on the use of UPI Global, as of now, cross-border UPI transactions can be used for peer-to-peer remittances, for gifting and for supporting relatives abroad. If UPI cross-border transactions are classified as current account transactions, future UPI Global transactions should be permitted under the current account rules unless:

　　Prohibited transactions such as remittance of lottery winnings, earnings from horse racing/riding or any other hobby, remittance of lottery tickets, sweepstakes, banned/prohibited magazines, football betting, etc., remittance of payment of export commissions for equity investment in joint ventures/wholly owned subsidiaries of Indian companies abroad, remittance of dividends from any company to which the requirement of balancing of dividends is applicable, etc.

　　Transactions require prior approval from the Government of India, such as remittance tourism for cultural exchanges, or where the total amount of remittances made by an individual in a financial year exceeds the limits set by the LRS.

　　concluding remarks

　　The rollout and acceptance of UPI in several countries suggests that cross-border transactions using UPI will only grow. This is further fuelled by the acceptance of RuPay cards in Singapore and the UAE, and the fact that the Bill Payment System (BBPS) in India will soon be able to accept cross-border inbound payments. The Reserve Bank of India's Annual Report 2022 also makes recommendations for cross-border UPI, such as geo-tagging existing payment touch points and expanding literacy programmes.

　　The benefits of enabling cross-border UPI payments include:

　　For countries/regions where peer-to-peer payments are enabled (e.g. Singapore), it is easy to send money from and to India.

　　Payment facilities for Indian residents visiting other countries (e.g. tourists and short-term visitors).

　　Facilitating transactions for Indian students studying abroad.

　　Easily shop from merchants outside India in countries/regions where the co-operation extends beyond point-of-sale machines, without having to make international payments through debit/credit cards.

　　Though agreements have been reached with several countries and foreign entities, the actual effective implementation and popularisation of UPI usage may take some time and some teething problems may need to be overcome.UPI has changed the way payment transactions are carried out in India. In just a few years, India's cash economy is rapidly transforming into a digital transaction economy. This society-changing innovation has global benefits. Partnerships with established international payment service providers indicate a positive push to make UPI accessible to potential users around the globe. in addition, UPI's reach is helping India to drive the internationalisation of the rupee. This is an important step in India's globalisation efforts and could make India a truly global digital economy.

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