This summer, the U.S. began an ambitious experiment: a real-time payments system called FedNow. Built by the Federal Reserve, FedNow is designed to accelerate transactions for the digital age, bringing to businesses and banks the fast payments that consumers enjoy through mobile services such as Zelle or Venmo. If FedNow succeeds, it could eventually serve as America’s speedy payments backbone.
Changing an entire country’s digital payments architecture is a huge undertaking. Policymakers might be tempted to look to Silicon Valley for guidance. However, they’d be better served by looking for inspiration in India, where a similar payments transformation is well underway.
In 2016, India’s central bank launched its Unified Payments Interface system (UPI). With just a scan of a QR code, UPI allows virtually anyone in India to transact with anyone else. Last year, the system facilitated almost $2 trillion in payments. What began as a modest government experiment has turned India into the world’s largest real-time payments market–all in the span of a few years.
I emigrated from India in 2001 to pursue a technology career in America. In 2018, I first witnessed UPI in action when I went back to India for my job at Amazon. A colleague offered to treat me to lunch. At the register, he reached for his phone and scanned a QR code. I asked him what he had done, and he said, “Oh, it’s UPI. The QR code handles the transaction. Simple.”
At the time, it seemed too simple. But the more I learned, the more it became clear to me that this modest lunch counter transaction was an example of a broader technological triumph. Soon, I noticed UPI QR codes everywhere–taped to my rickshaw or laminated near a storefront register. Even the less well-off in India had personal QR codes to facilitate digital acts of charity.
In just six years, UPI grew from 2 million transactions annually to 74 billion–a staggering growth rate that would make any startup envious. UPI’s success was not always a given. When it was conceived in 2009, the Indian government hoped that a new digital payment system could help the unbanked, eliminate black-market activity, and reduce money printing costs. That’s a tough task in any country, but especially in India, with its multiethnic, multilingual, billion-person population, including many without computers, internet access, and even electricity.
Indians are also famously skeptical of government, an attitude captured in the darkly comic Hindi phrase “chalta hai,” which translates roughly to, “It is what it is.” And yet, with UPI, the government upended expectations. When UPI first launched, just half of Indians had a bank account. Today, that number now stands at over 80%–a considerable public policy achievement.
Three ingredients contributed to UPI’s success. The first is simplicity. Too often in tech, we chase the flashy solution. By contrast, UPI is built atop QR codes–a technology that debuted in 1994. Anyone with a sheet of paper and a QR code can connect to UPI and receive payments–a low-tech solution that lowers the barrier to entry for everyone.
The second ingredient is interoperability. Near an Indian cash register, you’ll find a sea of logos, whether for homegrown payment services like India’s PhonePe or global systems like Google Pay. Flexibility begets scale, and by opening the system to many banking partners, the government encouraged trust and sped up adoption.
Finally, India considered the needs and conditions of its people. UPI is a mobile-based system, as befits a nation with over a billion mobile phones. The system is also free to use for consumers and most merchants–which is critical in a country where 60% of the population lives on just a few dollars a day.
I’m cautiously optimistic about FedNow achieving similar success. The U.S. contains approximately 6 million unbanked households and many more “underbanked” residents. As India’s experience demonstrates, government-facilitated payment systems can nudge millions into mainstream economic life.
Although U.S. firms are famously reticent to forgo fees, India has proved that the private sector can be brought on board. UPI’s no-fee transactions were attractive to the smallest of small businesses, like the roadside vendors that populate the country. The system also helped India’s private banks, financial institutions, and cell phone providers. To use UPI, one still needs a bank account and a cell phone–which encourages people to acquire both. For India’s private sector, UPI facilitated smooth business payments–and a dose of free marketing.
Perhaps most importantly, UPI shows that a government can get substantial things done, even with widespread public skepticism and within a boisterous democracy. U.S. policymakers have much to learn from the Indian UPI experience—that is if we can suspend our American “chalta hai” attitude long enough to try this experiment.
Maju Kuruvilla is the CEO of Bolt, a financial technology company based in the United States.
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