India's UPI technology challenges global dominance of Visa and Mastercard

India's indigenous technology, UPI (Unified Payments Interface), has jeopardised the dominance of the world's largest financial companies, Visa and Mastercard. According to a report by TV9 Gujarati, India's digital payment model has forced even a developed nation like the US to rethink its financial system. While transferring money instantly from one bank to another is a major challenge in a country like the US, in India, even a street food vendor or a tea stall owner can accept a payment of ₹10 in just 2 seconds by scanning a QR code.

Before 2016, digital payment in India was limited to the use of plastic credit or debit cards. At that time, the global payment market was dominated by two major American companies, Visa and Mastercard. Their business model was highly strategic. Whenever a shopkeeper accepted a payment by swiping a card, these companies would charge the shopkeeper between 2 to 3 per cent as a Merchant Discount Rate (MDR). This meant that if an Indian merchant sold goods worth ₹100, ₹2 to ₹3 would go directly to these foreign companies. Additionally, the machines required for swiping cards were very expensive, making it unprofitable for small shopkeepers to accept digital payments.

Keeping this situation in mind, the Reserve Bank of India (RBI) and the country's banking experts wondered why the nation's money should go to foreign companies. From this thought, the National Payments Corporation of India (NPCI) was born. Indian engineers collaborated to develop a technology called UPI, which was not just an app, but a digital pathway for the movement of money. This system did not require cards or expensive machines; money could be transferred directly from one bank account to another using only a smartphone, internet, and a QR code. This significantly reduced the need for intermediaries like Visa and Mastercard.

In November 2016, when demonetization occurred in India and a cash shortage arose, the use of UPI and QR codes increased on a large scale. Vegetable vendors, cobblers, rickshaw drivers, and tea sellers began placing ₹10 QR codes at their shops. This transformation created new competition for companies like Visa and Mastercard in the Indian market. They expressed concerns to the US government regarding India's digital payment policies, arguing that India's policies create difficulties for foreign companies.

The discussion surrounding India's success intensified when the global technology giant Google wrote a letter to the US central bank, the US Federal Reserve. Google advised learning from India's UPI model to improve the American payment system. As a result, the US launched its own digital payment system, 'FedNow', aimed at promoting rapid bank-to-bank payments in America. Today, India performs more than 10 to 15 billion UPI transactions every month. Countries such as France, Singapore, and the UAE are also coming forward to adopt this Indian technology.

NPCI is the National Payments Corporation of India, an institution that manages retail payments and infrastructure in India.