When UPI is there why India needs Project Nexus? –
The Unified Payment Interface (UPI) is an interface that facilitates instant money transfers across banks in India. At a time, the UPI can transfer money (minimum Rs. 1 to maximum Rs. 100,000) from one bank account to another within the same bank OR another.
Anyone with an account in any bank has to download and install UPI apps – Paytm, PhonePe, Bhim, MobiQuick, etc. UPI can be used to make retail payments within India, however, when it comes to cross-border international payments, UPI cannot be used. Project Nexus is the answer.
International payment networks cannot accept UPI payments.
For the International payments, Visa, Mastercard, and American Express cards are used. That means, only their networks are used for international cross-border payments.
The flip side is, that the processing fees of these network companies are high, and payments are time-consuming, as it involves a currency conversion. Also, card ownership in India is very minuscule.
What is the alternative?
RBI and other central banks of Malaysia, Singapore, Thailand, and the Philippines came together with an initiative called Project Nexus (PN) spearheaded by the Innovation Hub of the Bank for International Settlements (BIS).
The objective of the PN is to make International cross-border retail payments transparent, instantaneous, and cheap.
Project Nexus (PN) in detail
Many countries have their own version of UPI OR instant payment system (IPS) for immediate money transfers across banks locally. For example, Singapore has “PayNow”, Malaysia has “DuitNow”, Thailand has “PromtPay”, the Philippines has “Higala” and Indonesia has “BI-Fast”.
The objective of PN is to enable instant cross-border retail payments by interlinking the above-mentioned instant payment systems (IPSs). It can also connect many other country IPSs.
India already signed a MoU with these countries, so why is PN required?
India signed a one-to-one MoU with the above countries to link its UPI with the other country’s payment system. However, to interface UPI with other countries’ instant payment systems (ISP), there is a lot of work to be done and it becomes tedious. Because of the complexity, the transaction speed goes down, and the cost goes up.
Project Nexus (PN) is the master interface that connects all other payment interfaces like UPI, PayNow, DuitNow, etc. Also, the PN acts as a traffic police deployed at the intersection regulating the flow of the payment data.
So, every country’s payment system has to talk to the PN in the language it understands, and based on the instruction given, the PN transfers data to the destined payment system instantaneously. If any transaction involves currency conversion, the PN will calculate the exchange rates beforehand and let the payer know about it.
The payer can pay the exact amount over his payment system and within seconds the transaction is processed and completed.
Other countries can also connect to PN.
India, Singapore, Malaysia, Philippines, and Indonesia are the founding members of the PN that facilitates easy and cheap cross-border retail payments. Going forward many other countries may take the membership of the PN OR can just use it for international payments.
The project is slated to go live at the end of 2026. By the end of this decade, more than 150 countries are expected to jump on this bandwagon and benefit the most.
Benefits of PN
- Speed and Efficiency
One of the main benefits of PN is the significant reduction in transaction times. Domestic payments through IPSs are usually completed within seconds. By connecting these systems, cross-border payments could also be processed in under a minute, compared to traditional banking systems that may take hours or even days.
This speed is achieved through the continuous operation of FPSs, which operate 24/7, unlike traditional central bank payment systems that only operate during business hours.
- Lower Costs
The cost of cross-border International payments can be prohibitive due to various fees, but Project Nexus can help reduce these costs. IPS participants generally incur minimal fees, and by interlinking these systems, the overall cost base for international transactions can be kept low.
This makes it more feasible for banks to offer these services even in countries where they lack a physical presence or direct partnerships.
- Enhanced Transparency
Traditional cross-border payments are often opaque, with fees accumulating at each stage and leading to uncertainty about the final amount received. Project Nexus promises greater transparency, with upfront fee calculations and immediate confirmation or failure of payments.
- Increased Reliability
Cross-border payments through traditional banking channels can be prone to delays and failures, leaving senders and recipients in the dark. Project Nexus ensures that payments are completed or failed within seconds, providing immediate feedback and reducing the risk of lost or delayed transactions.
- Benefits for businesses
“Project Nexus can boost international trade and commerce by facilitating quicker, cheaper, and more reliable cross-border payments, benefiting businesses, especially small and medium-sized enterprises (SMEs).”
Conclusion
Project Nexus will certainly be a game-changer for the world. RBI did the right thing to co-promote the project and come 2027, people could buy products online across the globe and pay for them in a jiffy and not worry about exchange rates. This will make cross-border selling and buying that much easier.
To learn more about Project Nexus, please visit this site. To know more about RBI’s new initiatives, please check on this.