Making remittance easier: UPI-PayNow linkage will reduce costs, digitisation of KYC key

In terms of cross-border remittances, the decision to integrate India’s Unified Payments Interface (UPI) platform with Singapore’s quick payments system, PayNow, is crucial. The connectivity must provide a fully digitised payments experience for people in both countries for it to be genuinely useful. Cross-border money transfers are currently governed by the Foreign Exchange Management Act, which includes a series of rules (Fema). Banks play a significant role in validating the credentials of persons sending and receiving monies across national borders because they are the official money changers in the financial system.

There are strict know-your-customer (KYC) laws in place to prevent money laundering, as well as the obligation of ensuring that each transaction is kosher. However, in order for a quick cross-border money transfer system to to take off, the KYC verification procedure must be entirely digitised as well. One of the reasons for UPI’s widespread adoption is how simple it is to sign up for a UPI app, which requires no physical or verbal interaction with a government employee. It remains to be seen whether this level of smoothness can be replicated in a cross-border payment system.

It may be feasible to construct other use-cases on top of the UPI-PayNow relationship if it is operationalized, such as selling other financial goods like trip insurance online. The connectivity will also enable a reduction in the cost of cross-border remittances, as the Reserve Bank of India (RBI) has stated. The central bank previously stated in its Payment Systems Vision 2021 report that the high cost of remittances conducted through formal channels may lead users to adopt less secure and prone to misuse informal channels. As a result, the G20 has made the issue of remittance cost a priority on its agenda and is encouraging appropriate legislation at the country level.

As the cost of transfers declines, financial intermediaries will see their earnings from remittance transactions dwindle. PayNow will be linked to UPI for the second time, following Thailand’s PromptPay, and transnational rapid money transfers may become more common in the near future. Banks and other foreign exchange service providers must begin to consider how to adapt to this changing reality and replace the revenue streams that are lost as a result.

Meanwhile, before the UPI-PayNow link is operationalized in June 2022, there is still some work to be done. There may be difficulties with back-end technology integration. There’s also no clear picture of what the regulatory structure for a new cross-border payment channel may look like right now. We don’t know how much disintermediation will be possible after the link is formed. The terms of data security and flow that RBI establishes with respect to the linking of the two platforms will be closely watched by stakeholders in the cross-border payments ecosystem. India is an exception in that legislation requires financial data maintained by intermediaries to be stored solely inside its borders. Money transfer service providers would like to know if the same regulations will apply under the new system.

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