PhonePe launches cross-border UPI payments in Sri Lanka

Calton café in One Galle Face Mall in Colombo accepts UPI payment via PhonePe. Image: Mexy Xavier

At the arrival of Bandaranaike International Airport in Colombo, Indian tourists can be spotted in large groups making their way into the city. After facing its worst economic crisis two years ago, business seems to be picking up in Sri Lanka. The country has also become a new hotspot for Indian travellers and has emerged as an alternative to Maldives post the political standoff. Indian digital payments company PhonePe is primed to make the most of the ramped-up footfall.

On May 15, PhonePe announced that it has enabled UPI payment acceptance in collaboration with LankaPay, Sri Lanka’s national payment network. Indians travelling to Sri Lanka can now make payments using the Unified Payments Interface (UPI) by scanning the LankaQR code, enabling quick payments without carrying cash or calculating currency conversions. Their account will be debited in INR, showing the currency exchange rate. This alliance for PhonePe is facilitated through LankaPay’s partnership with NPCI International Payments Limited (NIPL).

This means any UPI or PhonePe app user in Sri Lanka can scan any LankaQR code kept at a merchant location for the transaction to go through. The merchant will get the settlement in Lankan rupees, whereas in the issuer app, the bank account that is being used, will get debited in INR. The currency conversion is something that NPCI manages in between, explains Ritesh Pai, CEO of international payments at PhonePe.

“The merchants are the ones who are charged the merchant discount rate (MDR), and a certain fee out of that MDR is passed on to the issuer. And this being a cross-border transaction, because there is a currency conversion involved, there could be a slight markup on that particular transaction from Lankan rupee to Indian rupee when the debit happens, just to take care of the exchange fluctuations,” he adds.

This move comes after UPI services were rolled out on February 12 in Sri Lanka and Mauritius. Still under development, other countries accepting UPI include Singapore, Bhutan, Nepal, the UAE, and France. Ever since its launch in 2016, digital payments in India have grown manifold. From 92 crore transactions in 2017-18, the volume has increased to 8,375 crore transactions in 2022–23. In value terms, it has surged from Rs 1 lakh crore in 2017-18 to Rs 139 lakh crore in 2022–23.

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The umbrella organisation overseeing retail payments in India, the National Payments Corporation of India, is heavily promoting UPI's global acceptance. It is establishing partnerships with international payment service providers (PSPs) and facilitating the integration of UPI with international payment networks. Indian payment apps like PhonePe, Paytm, Amazon Pay, and Google Pay have been working on integrating their systems to offer the facility. The idea is to make cross-border transactions for Indian travellers easy as well as encourage other countries to boost their digital payment ecosystems.

PhonePe became the first to integrate UPI International and is now available across merchant outlets that have a local QR code in the UAE, Sri Lanka, Singapore, Mauritius, Nepal, and Bhutan. The Walmart-owned payments major claims to have over 530 million registered users and a digital payments acceptance network of 38 million merchants. It processes over 230 million daily transactions with an annualised total payment value (TPV) of more than $1.5 trillion.

India’s largest UPI app by market size, PhonePe, recorded a revenue of Rs 2,914 crore in the financial year ended March 31, 2023, an increase of almost 77 percent from Rs 1,646 crore in FY22. Founded in 2015, the startup attributed the increase in revenue to growth in money transfers, mobile recharges, and bill payments. PhonePe was acquired by Flipkart and its parent company, Walmart, a year after its launch.

Channa de Silva, CEO of LankaPay, said, “This partnership is bound to provide greater convenience to Indian tourists and business travellers in making seamless UPI payments at all LankaQR merchant points in Sri Lanka via the PhonePe app.”

Chethaka Wijesekera, co-owner of Zephyr Ceylon Café in Sri Lanka, is also excited and happy to introduce this at his café, as they get a lot of Indian tourists. They’ve been using cash payments and credit card services since 2015. But in the last two years, the café has started accepting payments via Apple Pay. “There has been a bit of hype about digital payments in Colombo, but we’re yet to see the awareness on the southern coast,” says Wijesekera, who runs two cafes on the southern coast of Sri Lanka.

“This is a great initiative, and once we as merchants have every detail on how it works, I would say this would definitely be an easier way for customers as well as us to operate,” he adds.

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Bank account ownership is high in Sri Lanka compared to South Asia, but a large percentage of the accounts are not active, and financial literacy is low. Insurance, retirement schemes, and mobile money uptake are also low. The increased digitisation of payments can lead to an increase in active usage of bank accounts and other financial services, boosting the overall economy, explains Talal Rafi, economic policy consultant at Asian Development Bank in Colombo.

“Integrated digital payments with India can boost tourism as India sends the largest number of tourists to Sri Lanka. India being the fastest-growing large economy and with a rising Indian middle class, this can only be of greater benefit to Sri Lanka in the medium to long term,” he adds.