The integration of fast payment systems between India and Singapore is a welcome move for non-resident Indians in Singapore. But it’s only useful if the transaction costs are lower than other routes for remittances.
Following deals with Bhutan and Dubai earlier this year, the Reserve Bank of India (RBI) signed an agreement with the Monetary Authority of Singapore to link their respective fast payment systems—Unified Payments Interface (UPI) and PayNow—to facilitate instant, low-cost, cross-border fund transfers. The linkage is expected to come into effect by July 2022.
“The UPI-PayNow linkage will enable users of each of the two fast payment systems to make instant, low-cost fund transfers on a reciprocal basis without a need to get onboarded onto the other payment system,” the RBI said in a press release (pdf).
The initiative comes on the heels of India’s efforts to foster cross-border payments using cards and QR codes between India and Singapore. It will anchor trade, travel, and remittance flows between the two countries, which amount to more than $1 billion a year, according to the RBI.
The impact on remittances
While many people living in Singapore route their funds through major remittance houses such as InstaReM and Singtel Dash, due to lower costs than banks, the time taken to transfer money sometimes extends up to two days. The fast payment system would save time, and also create new opportunities for lending and trading.
On average, the additional cost of transferring $200 (14,725 rupees) from Singapore to India through various remittance houses and banks stood at $3.95 in the January-March quarter this year. Likewise, $6.55 for every $500 of transfer, according to data by the World Bank.
Avil Maskarenhas is from Karnataka, and works at transportation company Grab in Singapore. “Migrant labour workers here in Singapore mostly use forex shops, which charge heavily around Rs55, including Rs3-4 commission. But skilled workers like engineers and bankers, use bank-to-bank transfer which is Rs2-2.5 per dollar. That is also very high,” he says. “It was only in 2019 when many remittance companies came up. They charge around Rs1 over and above the exchange rate.”
Retail investors could prosper
Apart from remittances and low-cost payments across borders, the initiative could also encourage retail investors to access global markets, considering Singapore is a thriving financial hub in the Asia-Pacific region. The RBI’s Liberalised Remittance Scheme allows residents to send up to $250,000 per financial year to another country for investment and expenditure.
“Currently, retail investors pay up to Rs3000 in inter-bank charges which are over and above the LRS (Liberalised Remittance Scheme) processing fees by banks.” says Asheesh Chanda, founder and CEO of a Singapore-based wealth management company Kristal.AI. “This eats into their returns and hence discourages small investors from accessing global markets.”
Increasing transfer limits
Another issue is that the Indian authorities may need to consider increasing the upper limit of Rs1 lakh per UPI transaction for cross-border payments so that the initiative turns out to be beneficial for small businesses or large payments. However, it brings the problem of scrutinizing financial transactions of larger amounts across borders.
If the limit is raised, it would be better than using banks: the traditional way of routing foreign exchange transactions through banks in India involves an extensive process of filling out forms.
“UPI transactions are limited to Rs1 lakh per account per day. When you’re transferring more than 1 lakh rupees in batches, the transaction costs will be much higher,” says Mohnish Wadhwa, partner at chartered accountancy firm Wadhwa & Shah. “In addition to the forex expenditure which is decided by banks, there will be a fee. So it is not viable for everybody to use this facility.”