UPI and CBDCs lower remittance costs and boost inflows: RBI

The Reserve Bank of India (RBI) has noted that the global adoption of the Unified Payments Interface (UPI) and the development of Central Bank Digital Currencies (CBDCs) could help lower remittance costs, boost their volume, and increase inflows. A report by RBI highlights that a 1% decrease in the cost of remitting US$200 results in a 1.6% increase in remittances.

According to the Reserve Bank of India (RBI), the global acceptance of the Unified Payments Interface (UPI) and the development of Central Bank Digital Currencies (CBDCs) could help reduce remittance costs, increase their volume, and boost inflows to recipients. 

RBI’s latest report on Currency and Finance reveals that the average cost of remitting US$200 in 2023 was lowest through Fintechs at 4.2%, compared to 5.4% through money transfer operators (MTOs) and 11.5% through banks.

For India, remittance costs from Singapore, Malaysia, the UK, Kuwait, Italy, and Bahrain were within the Sustainable Development Goal (SDG) target in Q4 2023. However, costs from Thailand and South Africa exceeded 10%, likely due to the dominant role of banks in these countries, unlike the more competitive remittance markets in the other countries, where banks face competition from money transfer operators (MTOs) and Fintechs.

The report highlights a study showing that a 1% decrease in the cost of remitting US$200 results in a 1.6% increase in remittances. Based on trends over the past decade, remittances to India are expected to rise from US$115 billion in 2023 to around US$160 billion by 2029.

India is projected to be the leading global supplier of labor until 2048, while the demand for Indian migrant workers is expected to remain high. This, combined with ongoing skill upgrades among the workforce, will likely sustain a robust flow of inward remittances. The study also notes that fast payment methods, such as UPI and direct transfers through Fintechs, are more cost-effective compared to traditional bank transfers or MTOs.

Digitalization has significantly transformed cross-border remittances and global capital flows by enhancing transparency, efficiency, financial inclusion, and risk management. 

Remittances to GDP ratio in India grew steadily from 2.8% in 2000 to 3.2% in 2023, surpassing the gross Foreign Direct Investment (FDI) inflows to GDP ratio of 1.9% in 2023, thereby strengthening India’s external sector.