Indian Council of World Affairs

Abstract: In recent years, the digital transformation of India’s financial ecosystem has positioned it as a global leader in digital public infrastructure. This success, driven by the success of the Unified Payments Interface (UPI), has also become a tool of soft power in its foreign policy, especially within its neighbourhood. The country’s technological diplomacy now extends beyond seamless cross-border integration and connectivity to also promote digital inclusiveness across the region as part of its notable neighbourhood first policy. 

UPI’s phenomenal journey in India 

Launched in April 2016 by the National Payments Corporation of India (NPCI), Unified Payments Interface (UPI) has revolutionised the digital payment ecosystem and accelerated India's transition towards a cashless economy.[i] Designed to enable interoperability, UPI has allowed users to link multiple bank accounts to any UPI-enabled application and transfer money instantly from one bank account to another. This efficient, secure and user-friendly system has significantly transformed financial habits of citizens and laid the foundation for a broader Digital Public Infrastructure (DPI) ecosystem that includes public services such as Aadhar and DigiLocker. 

To provide perspective, UPI recorded 20.01 billion transactions with a cumulative transaction value of approximately 24.85 lakh crore rupees in the month of August 2025.[ii]  UPI's extraordinary success transcends national borders, as it has overtaken Visa in real-time payment volumes and its total share in the world is almost 50%.[iii] Even though Visa still dominates in total value of transactions at over $13.2 trillion over UPI at $3.2 trillion (as of 1^st June, 2025), UPI’s rapid growth is extraordinary given the fact that Visa is almost five decades older than UPI.[iv]

Source: Ministry of Finance, Government of India.

Note: UPI surpassed Visa in daily transactions to become the world's top real time payments system.

India’s fintech diplomacy in its neighbourhood 

The remarkable success of UPI in India, despite its large and diverse population and extensive socio-economic divide, has gained global traction, evolving into an international public good that New Delhi is actively promoting abroad. This push has also been reflected in the neighbourhood where it has influenced neighbouring countries to build their version of digital infrastructure. Bhutan was the first country in the region to integrate UPI in July 2021. The two neighbouring nations had already enabled the RuPay card inter-operability followed by the launch of BHIM UPI, further deepening the financial integration between the two nations. NPCI International Payments Limited (NIPL) collaborated with the Royal Monetary Authority (RMA) of Bhutan to enable cross-border QR-based payments in Bhutan.[v] Bhutan had already developed a cost-effective QR code payments system. By 2024, the Bhutan QR had emerged as the second highest payment channel domestically, with 43.3% in volume and the third highest with 13.59% of the transaction value in its overall digital payment transaction.[vi] 

Source: Bhutan’s Annual Payment Systems Report (2024)

Note: The report shows exponential growth in domestic QR based payments in Bhutan over the years.

Sri Lanka and Nepal also embraced UPI to digitize their financial system in early 2024. In Nepal, NIPL collaborated with Fonepay, the country’s largest payment network, to jointly launch the UPI system in March 2024.[vii] Within six months, UPI Person-to-Merchants (P2M) transactions in Nepal crossed the 100,000 mark.[viii] Cross-border QR-based transactions between India and Nepal have crossed the 1 million mark, with the total transactional value reaching nearly 2 billion Nepalese Rupees.[ix] Moreover, the country has witnessed unprecedented growth in its own QR-based payments from 94.5 billion Nepalese rupees in 2021-22 to 499 billion Nepalese rupees in 2024-25 indicating the accelerating shift towards a digital economy (payment system oversight report).[x] 

 

Source: Payment Systems Oversight Report

Note: The report is published by Nepal Rashtra Bank, Central Bank of Nepal

 
Prime Minister Modi and President Ranil Wickremesinghe jointly inaugurated UPI services in Sri Lanka. The initiative was launched through collaboration between PhonePe, one of India’s successful UPI companies and Lankapay, Sri Lanka’s national payments network, on 15th May, 2024.[xi] During the state visit of President Anura Kumara Dissanayaka in December 2024, PM Modi reaffirmed India’s readiness to cooperate and assist Sri Lanka in developing a robust DPI infrastructure based on the principles of “people-centric digitization”.[xii]

During Prime Minister Modi’s visit to Maldives (25 July, 2025), the two countries signed 6 Memoranda of Understanding (MoUs), including agreements on digital public infrastructure and UPI.[xiii] This development made the Maldives the fourth country in India’s immediate neighbourhood to integrate with its indigenous digital payment systems. The Maldives’ digital payment ecosystem is relatively new, with the Maldives Monetary Authority (MMA), the country’s central bank, launching its Instant Payment System, also known as “Favara” in August 2023.[xiv] The launch of the UPI is therefore not just aimed at linking the digital financial infrastructure between the two nations, but also strengthening the overall financial inclusion in the Maldives, which is part of MMA’s broader three-year strategic plan.[xv]

Assessment 

South Asia remains one of the least integrated regions globally, with intra-regional trade accounting barely over 5% of total trade. The region however holds immense potential for expanding trade and commerce, through the digital interoperable payment system. The introduction of QR-based interoperable payment system in neighbouring countries can help overcome the challenge of currency exchange barriers, traditionally considered a major constraint, boosting the trade and tourism sectors in the region. Moreover, UPI's minimal transaction costs make it an alternative option for users across the region. Cross-border UPI transactions reached 6.01 lakh within the first quarter (April–June) of 2025, worth ₹169.29 crore, compared to a total of 7.55 lakh transactions in 2024.[xvi] This significant growth in the numbers underscores the deepening regional cooperation, mutual interdependence and the sharing of the technological advancements in South Asia’s digital age.

On this premise, UPI has emerged as a crucial pillar of India’s soft power diplomacy. India’s soft power today is now being shaped not only by its culture, yoga and films, but also by digital and financial connectivity in its neighbourhood. NFP, which is based on the premise of non-reciprocity and regional stability, is a cornerstone of its foreign policy. Prime Minister Modi during the launch of UPI in Sri Lanka, underscored that digital connectivity through UPI will further strengthen India’s historic ties with its neighbours, people-to-people relations, trade and tourism.[xvii] He also characterized UPI as a symbol of ‘Uniting Partners with India’ in digital finance and connectivity.[xviii] India’s DPI outreach has therefore accelerated the process of “cross-border digital partnership” across South Asia.

Conclusion 

India’s DPI outreach, led by UPI, has become a new strategic initiative in its neighbourhood-first policy. By extending its digital model to neighbouring countries, India is not only expanding its digital footprint and shaping technological diplomacy, but also fostering digital inclusion and regional cooperation in South Asia. This cross-border digital partnership reflects India’s growing soft power diplomacy, as it enhances mutual interdependence in trade, technology, and trust among the nations. India can therefore increase its export share by including other components of DPI, such as Aadhaar, DigiLocker, and e-KYC, alongside UPI. Ultimately, DPI diplomacy has paved the way for a more digitally and financially integrated South Asia.

*****

*Mohd Hadi Raza, Research Intern, Indian Council of World Affairs, New Delhi
Disclaimer: Views expressed are personal. 

Endnotes 

[i] Chopra, Chirag, and Piyush Gupta. 2023. “India’s Unified Payment Interface’s Impact on the Financial Landscape.” World Economic Forum. June 26, 2023. https://www.weforum.org/stories/2023/06/india-unified-payment-interface-impact/. Assessed September 04, 2025.

[ii] ET Online. 2025. “UPI Crosses 20 Billion Transactions in August, Records ₹24.85 Lakh Crore Value.” The Economic Times. Economic Times. September 9, 2025. https://economictimes.indiatimes.com/industry/banking/finance/banking/upi-crosses-20-billion-transactions-in-august-records-24-85-lakh-crore-value/articleshow/123633627.cms. Assessed September 13, 2025. 

[iii] DH Web Desk. 2025. “India’s UPI Emerges as Global Leader in Fast Payments, Surpasses Visa: Report.” Deccan Herald. July 22, 2025. https://www.deccanherald.com/india/indias-upi-emerges-as-global-leader-in-fast-payments-surpasses-visa-report-3641784. Assessed September 15, 2025. 

[iv] OBSERVER RESEARCH FOUNDATION. 2025. “Having Achieved Scale, UPI Must Power India’s Grand Strategy.” Orfonline.org. June 7, 2025. https://www.orfonline.org/english/expert-speak/having-achieved-scale-upi-must-power-india-s-grand-strategy. Assessed September 7, 2025. 

[v] Rajeev Jayaswal. 2021. “After Singapore, Bhutan Adopts India’s BHIM-UPI| Business News.” Hindustan Times. July 13, 2021. https://www.hindustantimes.com/business/after-singapore-bhutan-adopts-india-s-bhimupi-101626175553601.html. Assessed September 08, 2025.

[vi] ANNUAL PAYMENTS SYSTEM REPORTS, 2024.” 2025. Department of Payments and Settlement Systems, ROYAL MONETARTY AUTHORITY OF BHUTAN. https://www.rma.org.bt/media/Publication/Payments%20&%20Settlement%20Systems/Annual%20Payment%20System%20Report%202024.pdf. Assessed September 10, 2025.

[vii] HT News Desk. 2024. “UPI Now Accepted in Nepal: How It Works and Other Key Details| Business News.” Hindustan Times. March 11, 2024. https://www.hindustantimes.com/business/upi-now-accepted-in-nepal-how-it-works-and-other-key-details-101710144313638.html. Assessed September 06, 2025. 

[viii] ANI. 2024. “UPI Merchant Transactions in Nepal Cross 100,000 Milestone.” BusinessLine. August 11, 2024. https://www.thehindubusinessline.com/money-and-banking/upi-merchant-transactions-in-nepal-cross-100000-milestone/article68512087.ece. Assessed September 15, 2025.

[ix] “Indians Paying by QR in Nepal for a Year but Nepalis Still Lack Access in India.” 2025. @Kathmandupost. The Kathmandu Post. July 16, 2025. https://kathmandupost.com/money/2025/07/16/indians-paying-by-qr-in-nepal-for-a-year-but-nepalis-still-lack-access-in-india. Assessed October 15, 2025.

[x] PAYMENT SYSTEMS OVERSIGHT REPORT.” 2025. Buluwatar, Kathmandu: Nepal Rastra Bank, Payment Systems Department. https://www.nrb.org.np/contents/uploads/2025/01/Payment-Oversight-Report-2023-24.pdf. Assessed October 11, 2025.

[xi] India. “PhonePe Partners with LankaPay, Launches UPI in Sri Lanka.” www.ndtv.com, NDTV, 15 May 2024, www.ndtv.com/india-news/phonepe-partners-with-lankapay-launches-upi-in-sri-lanka-5672025. Assessed September 20, 2025.

India++Sri+Lanka+Joint+Statement++Fostering+Partnerships+for+a+Shared+Future.

[xii] Ministry of External Affairs, Government of India, “India-Sri Lanka Joint Statement: Fostering Partnership for a Shared Future, 2024. Mea.gov.in. December 16, 2024. https://www.mea.gov.in/incoming-visit-detail.htm?38797/India++Sri+Lanka+Joint+Statement++Fostering+Partnerships+for+a+Shared+Future. Assessed October 16, 2025.

[xiii] Ministry of External Affairs, Government of India, “Prime Minister Meets the President of Maldives (July 25, 2025)”, July 25, 2025, https://www.mea.gov.in/press-releases.htm?dtl/39874/Prime_Minister_meets_the_President_of_Maldives_July_25_2025. Assessed September 10, 2025. 

[xiv] Zyl, Salome Van. 2023. “‘Favara’ Instant Payment System: Propelling the Maldives towards a Financially Inclusive Future - Alliance for Financial Inclusion.” Alliance for Financial Inclusion - Bringing Smart Policies to Life. October 24, 2023. https://www.afi-global.org/opinion/favara-instant-payment-system-propelling-the-maldives-towards-a-financially-inclusive-future/. Assessed October 20, 2025.

[xv] Corporate Maldives. “Maldives to Link Favara with India’s UPI to Ease Cross-Border Payments.” corporatemaldives.com, July 26, 2025. https://corporatemaldives.com/maldives-to-link-favara-with-indias-upi-to-ease-cross-border-payments/. Assessed October 20, 2025.

[xvi] Ajinkya Kawale. 2025. “UPI Goes Global: Cross-Border Transactions Grow 20-Fold in a Year.” @Bsindia. Business Standard. August 25, 2025. https://www.business-standard.com/finance/news/upi-goes-global-cross-border-transactions-grow-20-fold-125082501180_1.html. Assessed October, 2025.

[xvii] Ministry of External Affairs, Government of India, “Prime Minister jointly inaugurates UPI services with Mauritius Prime Minister & Sri Lankan President”, February 12, 2024, Prime Minister jointly inaugurates UPI services with Mauritius Prime Minister & Sri Lankan President. Assessed September 13, 2025. 

[xviii] Ibid