India’s plan to export its wildly successful digital payments system

At the G20 Summit in February, Indian prime minister Narendra Modi made a case for the global adoption of India’s state-backed digital payments platform: the unified payments interface (UPI). “We would be happy to share our experience with the world and the G20 can be a vehicle for this,” said Modi, about the tech that allows real-time money transfers to bank accounts using smartphones, eliminating the need for wallets.

UPI, introduced in 2016, has surpassed the use of credit and debit cards in India. Nearly 260 million Indians use UPI — in January 2023, it recorded about 8 billion transactions worth nearly $200 billion. The transactions can be facilitated using mobile numbers or QR codes, ranging from a few cents to 100,000 rupees ($1,221) a day. In 2019, Google recommended the U.S. Federal Reserve emulate UPI as it develops its own real-time payments system FedNow.

In the aftermath of U.S. payment sanctions stunting Russia, more countries have vocalized a desire for internet and payments sovereignty. India has pitched its digital public infrastructure (DPI) as a sovereign, self-owned technology stack, policy experts told Rest of World. 

DPIs are interoperable platforms for digital identity, payments, and data exchange that allow governments to provide essential services to citizens. For instance, connecting digital IDs to bank accounts enabled the Indian government to transfer cash electronically to around 200 million vulnerable beneficiaries during the Covid-19 pandemic. More countries are willing to adopt technologies like UPI as India is viewed as a “benign and non-hegemonic power,” Sanjay Anandaram, an investor and the co-founder of the Network of Indian Cultural Enterprises (NICEorg) nonprofit, told Rest of World. NICEorg seeks to create Indian soft power through entrepreneurial ventures.

“[India] has not aligned itself entirely with any one clique or power, or the other,” Anandaram said. He noted that India’s ambition is twofold: to promote the adoption of digital public goods, like its biometric identity system Aadhaar, in developing countries; and to expand cross-border acceptance of UPI among friendly nations.

UPI has already seen some success internationally. Last month, Singapore started cross-border payments between its national payments system PayNow and UPI. The cross-border money flow between the two countries amounts to more than $1 billion, according to TechCrunch. India’s neighbors Bhutan and Nepal have also launched UPI, and from April 2023, it will facilitate remittances in 10 locations, including the United Arab Emirates, Australia, and Hong Kong.

Private companies in India, such as Google Pay and Walmart’s PhonePe, have developed apps that use UPI. With more than 200 million users, they are wildly successful. Yet, “100% of UPI traffic flows through the Indian banking system,” Sharad Sharma, co-founder of iSpirt, a think tank and lobby group that had helped design, promote, and export DPIs, told Rest of World. Sharma was also the chair of the DPI task force at the G20 Summit. The underlying tech is owned by the government, but there’s been cutting-edge innovation by private companies. The National Payments Corporation of India, a central bank-owned nonprofit organization, oversees UPI.

“Digital public infrastructure has an appeal in terms of sovereignty,” Trisha Ray, deputy director at the Center for Security, Strategy and Technology at the Observer Research Foundation (ORF), told Rest of World. Ray was also the coordinator for the DPI task force. “Having your own digital infrastructure, whether it be in terms of payments, or IT that you’ve built from the ground up without reliance on external service providers has an appeal for countries,” she said.

India launched its own digital infrastructure in 2009, when Nandan Nilekani, the co-founder of IT and outsourcing major Infosys, spearheaded the creation and adoption of the digital ID card Aadhaar. The 12-digit unique number, used by 1.3 billion Indians today, is a single-source identification number used for everything from issuing digital vaccine certificates and improving the delivery of social benefits to authenticating users for mobile connections and opening bank accounts.

The UPI-based digital payments system has been built with Aadhaar as its base. Users without debit cards can use a UPI address — similar to an email address — to transfer money from their Aadhaar-linked bank accounts in real time. Over the past decade, the government has used Aadhaar as a building block for a host of digital services, such as payments, e-signatures, and health apps; these interlinked sets of digital platforms are called India Stack.

This stack was built for Indians to regain control of data, following concerns about digital colonization, said Sharma of iSpirt, which is a nonprofit evangelist for India Stack. “Clearly, every society is more dependent on digital infrastructure. That digital infrastructure, [such as apps] and cloud infrastructure, is coming from the West, and therefore everybody is worried about colonization.” India’s view has been that critical digital infrastructure, which mediates payments, identity, and flow of data, should be public infrastructure owned by the government, and not private. “Now, this idea has been brought to life in India, and is an idea that’s animating the world,” Sharma said.

India’s federal bank has been pushing for the internationalization of UPI since 2020. One of the reasons for this aggressive global expansion is to mitigate geopolitical risk. In February 2022, the U.S. and its Western allies blocked Russian banks’ access to Swift, an international payments system used by thousands of financial institutions, hurting Russia severely. It spooked other countries about secondary sanctions — especially India, which continues to purchase crude oil from Russia. “We are building independence from the Swift network,” Vivek Abraham, an iSpirt volunteer, told Rest of World.

India has partnered with banks and payment companies in countries including the U.S., the U.K., Singapore, Saudi Arabia, Oman, and the UAE to make UPI available to the Indian diaspora or Indian tourists. “If you look at it, we are going to those countries first where we receive most remittances,” Abraham said. India is one of the largest remittance recipients in the world, amounting to about $100 billion in 2022.

“Because your average person who lives in the Gulf [countries] will essentially send money via Western Union, which is basically on the Swift network, you crack that down, all those remittances go in a single stroke,” Abraham said. “So [India wants to] create a new system where, from your local bank account, you’re able to transfer without ever touching the dollar system.” The Indian central bank, with the government’s blessing, is striking partnerships to increase UPI’s reach and bypass international payments enabled by American card networks Visa and Mastercard.

This anxiety stems from historic precedent as well. During the 1999 Kargil war, the U.S. denied India’s request to access its GPS technology to plan their defense; a year earlier, the U.S. had imposed economic sanctions on India over nuclear tests. “The point being that these are examples that show how [tech] weaponization can occur,” said Anandaram of NICEorg.

Ray from ORF said this precarity has also resonated with other developing countries, especially African nations, who are sympathetic to India’s neutral stance in the Russia-Ukraine conflict.

Some of the replication or export of the digital public infrastructure is happening through MOSIP, or a modular open-source identity platform. In 2018, Nikelani drew on the experience of Aadhaar, which was built on proprietary software, and proposed setting up an open-source foundational ID that could be used by any country, free of charge. At the time, much of the developing world still lacked a digital ID, denying citizens social support, health care, and financial inclusion. Aadhaar’s success at creating a financially inclusive ID system — even before the pandemic — spurred interest from at least 50 countries who wanted a similar solution. The MOSIP project, housed in the International Institute of Information Technology, Bangalore (IIIT-B), offered “Aadhaar in a box,” a cost-effective way for developing nations to build a foundational identity system. The project is funded by the Bill & Melinda Gates Foundation, Sir Ratan Tata Trust, and the Omidyar Network.

The Philippines and Morocco are the farthest along in implementing an open-source national ID based on MOSIP. The Philippines has registered 77.5 million PhilIDs so far. Anandaram of NICEorg, who is also a board member of MOSIP, said there are 10 other countries that have signed agreements, and are in different stages of trials. MOSIP does not have a technology, country or private company locked in — each country can make modifications to the stack based on their requirements. “India has much to offer, [which] explains how and why … something like MOSIP is finding enormous traction in Africa,” Anandaram said.

Those involved feel that in the long run, international adoption of DPIs — and training, deploying, managing, and running them — would help India forge stronger bilateral relations. Indian entrepreneurs see opportunity as the stack goes global. In February, as soon as cross-border UPI payments were announced, TechCrunch reported that Walmart’s PhonePe extended international payment support in Singapore, Mauritius, Nepal, Bhutan, and the UAE.

Indian investors, too, are bullish about riding this wave of digital public goods exports. “As this stack gets transported to different parts of the world, these startups now get an opportunity [to go global],” Prashanth Prakash, partner at private equity firm Accel, said at a panel on “globalizing the India stack.” One of his portfolio companies, JusPay, helps banks send messages to authenticate UPI transactions. “Just like Visa went from country to country, we have Indian startups like JusPay — could be any of these companies — that can now become global service providers, and take advantage of the global opportunity as these exports [pick up],” Prakash said.