India's UPI integrates with Singapore's PayNow: What's next for cross-border payments and remittances?

While the integration of UPI and PayNow will make remittances cheaper, more needs to be done from an operational, data privacy policy and governance point of view to affect real impact—an analysis of the move

Updated: Mar 14, 2023 04:01:55 PM UTC
The integration of fast payment systems is expected to unlock tremendous economic potential for India and Singapore. Image: Shutterstock

In FY22, the total transaction value processed by the United Payments Interface (UPI) platform accounted for 86 percent of India’s GDP. It also played a great role in helping the country weather the economic aftermath of the Covid-19 pandemic.

Seeking to replicate a similar success story, the Reserve Bank of India (RBI) and the Monetary Authority of Singapore (MAS) finally launched the linkage of UPI and Singapore’s PayNow last week, after an eight-month long delay since the initial implementation date.

It is now believed that the linkage will extend to other jurisdictions such as the UAE, Mauritius, and Indonesia, in an effort to ramp up the utility of the UPI platform by attempting to integrate it with the payment systems of cross-border jurisdictions.

The relevance of digital payments linkage with Singapore

The UPI-Paynow linkage enables real-time payments at competitive rates, reducing remittance costs significantly.

According to a World Bank report in December 2022, remittances from Singapore to India were on track to breach the $100 billion mark in 2023, making it the fourth highest remitting nation to India, accounting for 5.7 percent of all inbound remittances. On average, the cost of transferring $200 (Rs 16,518) from Singapore to India through platforms such as Instarem and Singtel Dash is $3.95 (Rs 326.24), with up to one-two business days taken for such transfers. The cost of bank-to-bank remittance is around $6 (Rs 495.55) for the same amount, with the turnaround time being up to 24 hours. Integrating PayNow and UPI will likely reduce these charges and the time taken for such transactions.

Is the PayNow-UPI linkage viable?

A statement by an official at the MAS and a separate statement by the Indian High Commissioner to Singapore both mentioned that under the PayNow-UPI integrated system, remittances would become 10 percent cheaper. However, this benefit accrues to bank-to-bank transfers alone. Other localised non-bank forex services, such as Moneymax and MoneyGram will still be able to offer cheaper services, which could reduce the viability of the PayNow-UPI payment system.

As of now, selected users from Singapore’s DBS and POSB bank will be able to use the PayNow-UPI platform to transfer up to SGD 200 (Rs 12,281) per transaction to India, capped at SGD 500 (Rs 30,703) a day. The service will be extended to all customers of the participating banks by March 31, with the limit capped at SGD 1,000 (Rs 61,408) a day. This cap is far smaller than the domestic UPI transfer limit of Rs 1 lakh (SGD 1,628, calculated at the exchange rate of Rs 61.41 = 1 SGD) transaction limit per day. The upper limit of the transfer cap may have to be increased to improve the attractiveness of UPI-PayNow payment linkage.

Also Read: How credit card-linked UPI is a step toward better financial inclusion

As of now, customers of only six participating Indian banks—Axis Bank, DBS India, ICICI Bank, Indian Bank, Indian Overseas Bank and State Bank of India —will be able to receive funds through this service. The full potential of remittance benefits can be realised only when more banks come under the integrated payment platform umbrella.

Underlying questions on data regulations remain

The Ministry of Electronics and Information Technology (MeitY) only recently released the third version of the Data Protection Bill for public consultations.

The fact that India is yet to legislate a comprehensive data protection framework and is still discussing a bill likely makes one wonder about the data protection terms in cross-border payment systems.

Concerns also arise on the controversial provisions in the bill, such as the ‘national security’ exemption given to investigative agencies to access the personal data of users and the establishment of the Data Protection Board as a central government agency instead of a statutory authority. Such regulatory gaps require India to make it evident to the other jurisdictions that it would safeguard the privacy of foreign citizens accessing UPI.

Although India’s Data Protection Bill eases regulations for cross-border data flows, the draft National Data Governance Framework Policy categorically mentions that priority will be given to India-based entities on requests to access non-personal data. Such policy ambiguity between flexible data localisation and stringent data sovereignty also creates concerns about the viability of cross-border digital payment partnerships.

Success of payments linkage lies in a joint governance model

A closer look at the integration of the fast payment system of Singapore and Thailand, PayNow-PromPay, tells us that such collaborations require cooperation and coordination with multiple stakeholders to achieve technology and commercial alignment, along with seamless network connectivity. For example, Singapore and Thailand set up a joint governance board with representatives from financial regulators and industry associations of both nations to work out the implementation challenges, while in the case of India and Singapore, such an authority to drive the process seems formally absent.

Furthermore, industry trends indicate that for such collaborations to be successful, they must be sustainable, scalable, and inclusive. Thailand and Singapore are currently working on QR code interoperability to make payments scalable and continuously reviewing commercial fees and joint dispute resolution mechanisms to make it sustainable, along with diversifying offerings to include non-bank payment providers in order to make it inclusive. Discussions around these long-term aspects of the partnership needs to happen between India and Singapore.

Way forward

The need of the hour is for Indian policymakers to harmonise data protection and share regulations into one-stop omnibus legislation allowing greater speed and predictability. Additionally, a joint working committee should be set up with representation from the government, industry associations, telecom companies and bankers from both nations for the smooth operations of the payments platform. There is also a need to review the commercial terms of the use of the platform based on inputs from the industry and non-formal operators through a structured stakeholder consultation process.

Also Read: Vijay Shekhar Sharma was once the poster boy of India's fintech revolution. Now it all seems to be crashing down

The integration of fast payment systems is expected to unlock tremendous economic potential for India and Singapore. But for the cross-border payments system to live up to its promise, many fundamental issues will need to be addressed swiftly.

*All exchange rates as of March 1, 2023, when 1 SGD=Rs 61.41 and $1 = Rs 82.59.

About authors: Ammu George and Rohanshi Vaid are, respectively, research fellow and research associate at the Asia Competitiveness Institute, Lee Kuan Yew School of Public Policy, National University of Singapore. Alimpan Banerjee is a MPA candidate at the Lee Kuan Yew School of Public Policy, National University of Singapore.

The thoughts and opinions shared here are of the author.

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