Today
- Compliance
- Cross Border Payments
- End-to-end Payment Solutions
By Sunny Salman, Senior Director, Corporate Development – M&A and Strategy, PayU
India’s economic boom, with a surging GDP and growing global trade influence, has created a fertile ground for FinTech innovation, particularly in cross-border payments. Over the past decade, India transformed from a nation with a $300 per capita GDP in 1991 to one boasting $2750 per capita by 2024.
A fast-growing economy with over 1.3 billion people presents a high-priority market for international companies that want to cater to Indian consumers and merchants. This is a fertile ground for growth in imports, primarily around discretionary and affluent consumption.
The Government has set a steep target of $2 trillion in exports by 2030 and is backing initiatives like ‘Make in India’ to bolster the Manufacturing and Services sectors. This would entail further penetration of MSME exports and growth of service providers in freight, insurance and financing. The RBI and NPCI are also pivotal in integrating with international payment systems to facilitate seamless cross-border payments and compliance.
FinTech companies have seized this opportunity to revolutionise cross-border payments. Initially offering basic payment gateways, they have rapidly evolved into comprehensive financial service providers. From credit solutions and direct-to-consumer lending to SMEs, FinTechs are now at the forefront of financial inclusion. Their focus on cross-border payments leverages advanced technology and innovative approaches to deliver faster and more cost-effective international money transfers. This focus positions FinTech as a critical driver in enhancing the accessibility and efficiency of cross-border transactions in India’s booming economy.
As India aspires to become the world’s third-largest economy by 2031, FinTech and its focus on cross-border payments are poised to play a central role in propelling the nation’s economic growth and global reach.
Regulatory Landscape and Compliance Challenges
The Reserve Bank of India (RBI) plays a critical role in shaping India’s cross-border payment landscape. While navigating the regulatory framework, including the Payment Systems and Cross-Border (PSCB) application process, can be complex, the RBI is actively working to improve the system’s efficiency. To ensure security and compliance, integrating Anti-Money Laundering (AML) checks and adhering to international standards remain essential. Encouragingly, the RBI’s participation in Project Nexus, a collaborative effort to enable instant cross-border payments, and India’s WTO proposal to reduce remittance costs demonstrate a commitment to streamlining cross-border transactions.
FinTechs Streamlining Cross-Border Payments to Boost Exports
India’s economic growth is fueling a surge in global trade, with exports reaching $778.2 billion in 2023. This impressive performance has seen India’s rank among world merchandise exporters improve from 19th to 17th, with its share of global exports rising to 1.82%.
Traditionally, cross-border payments were slow and expensive, often exceeding 8% in fees. FinTech innovations are revolutionising this landscape. Technologies like virtual accounts, digital currencies, blockchain, and AI are streamlining transactions, while API-based solutions offer end-to-end payment tracking for both payers and beneficiaries. FinTechs are also collaborating with banks to leverage their capabilities, creating a powerful partnership that provides faster, cheaper international money transfers and, ultimately, a more efficient and competitive cross-border trade environment for India’s booming economy.
It is quintessential to make cross-border payments affordable and transparent to enhance growth further and empower MSMEs. India’s thriving digital payments sector leads by example in creating a holistic and efficient cross-border experience. MSMEs, which contribute a significant 45% of total exports, are critical to further growth, but reducing payment costs is essential to enhance their competitiveness.
India’s digital payment revolution is extending beyond its borders. The Unified Payments Interface (UPI) system, known for enabling instant domestic transactions, is now being adapted for cross-border use. This is driving a surge in digital transactions – with UPI processing over 164.4 billion transactions in FY24, reflecting a staggering 44% year-on-year growth, according to the annual report by RBI. Furthermore, RBI’s collaboration with the National Payments Council of India (NPCI) to strengthen international UPI transactions signifies not just a rise in domestic digital payments, but acceptance of digital solutions for international transactions as well.
Future of Cross-Border Payments in India
The future of cross-border payments in India looks promising, with significant opportunities for growth and innovation. The government’s target of achieving $150 billion to $200 billion in e-commerce exports underscores the sector’s potential. Addressing challenges and building a cohesive and efficient payment ecosystem is crucial for realizing this goal.
India’s strategic role in the global payments landscape is a testament to its technological advancements and commitment to integrating into the global economy. While challenges remain, the opportunities are immense. By leveraging technology, fostering industry collaboration, and addressing regulatory complexities, India can solidify its position as a global payments hub. As the country continues to innovate and evolve, the future of cross-border payments in India looks bright, promising greater efficiency, security, and inclusivity in the global payments ecosystem.