As the world becomes increasingly connected, cross-border payments serve as the backbone of international trade and commerce. Given that India is one of the world's largest exporters of services and has demonstrated a consistent year on year growth in export of merchandise, coupled with its position as one of the largest recipients of inward remittances, it relies heavily on efficient, secure and well-regulated payment systems to support its diaspora and facilitate economic growth.
Regulatory Framework
The introduction of a regulatory framework for cross-border payment aggregators, cross-border operationalisation of the Unified Payments Interface, and the Reserve Bank of India's impetus to the central bank digital currency are significant steps taken by the RBI in this direction. As of early 2025, only five entities have received authorisation to act as PA-CBs since the RBI's guidelines were issued in October 2023. This slow uptake highlights stringent compliance requirements that may hinder fintech innovation in this sector.
One of the most significant hurdles is the net worth requirement for a PA-CB entity, which mandates achieving a net worth of Rs 25 crore within three years of obtaining registration. While the substantial threshold is intended to ensure that only financially sound entities engage in cross-border transactions, it also acts as a barrier for emerging fintech companies who are already providing payment related services in the domestic space.
To ease this entry barrier, the RBI could consider linking the net worth requirement to operational metrics, such as the number of merchants onboarded and the volume or value of transactions processed by the PA-CB by 2025. This approach would create a more inclusive framework while maintaining safeguards aligned with the scale of operations.
Further, the RBI has prescribed that PA-CBs can process payments for import and export transactions up to a maximum per-unit value of Rs 25,00,000 for goods or services purchased or sold. This restriction effectively excludes larger corporates from the customer base of the PA-CB, which typically engage in higher-value transactions, forcing them to directly tie up with authorised dealer banks for processing such high-value payments. Consequently, the scope of business opportunities for PA-CBs is limited to smaller payments in the cross-border payments ecosystem.
Integrating UPI, CBDCs
Amidst the regulatory challenges faced by the PA-CBs, India's UPI has emerged as a beacon for technological innovation and significantly transformed the digital payments landscape. By 2025, the UPI is projected to process an estimated 25 billion transactions monthly, with daily volumes exceeding 800 million transactions.
UPI facilitates instant, low-cost and real-time payments as opposed to traditional methods of payments, which involve higher fees and prolonged settlement times. While countries like Singapore, UAE, UK and Bhutan are already in discussions with the National Payments Corp. to ensure interoperability of the UPI on a cross-border basis, it remains to be seen if the UPI can achieve widespread adoption and seamless integration with other international payment systems. Even if integrated, cross-border payments using the UPI will also have to undergo relevant anti-money laundering and other checks such as transactions screening and customer due diligence, which might introduce delays in processing high-value transactions.
In addition to the UPI, the introduction of India's CBDC, eRupee, also has the potential to revolutionise cross border payments. The CBDCs, leveraging blockchain technology, offer the potential to significantly reduce the time, cost and complexity associated with international transactions. Cross-border payments using the CBDCs may lead to a reduction in transaction costs and settlement time since the intermediaries involved in a typical cross border transaction, such as correspondent banks, are eliminated.
Collaborations between central banks globally to establish interoperable CBDC systems could pave the way for a seamless cross-border digital payment system. However, such collaboration will require significant time, regulatory coordination and alignment of international financial and technical standards before a fully integrated global CBDC system is put in place.
The Path Forward
The regulatory framework for the PA-CBs can be said to be in its early stages and may need certain relaxations for the PA-CBs to play a significant part in the cross-border payment ecosystem. At the same time, the RBI and NPCI are likely to push for the global expansion of the UPI and CBDCs, which holds great promise for enhancing the efficiency of cross-border payments.
In 2025, a collaborative approach may be the need of the hour between international regulators and financial institutions in order to create a secure and efficient cross-border payment system, which is capable of catering to the needs of a globalised economy.
In summary, the confluence of regulatory reforms and technological advancements will redefine cross-border payments in India in 2025. The integration of the UPI and CBDCs alongside an inclusive regulatory framework will not only streamline international transactions but also enhance India's competitiveness on the global stage.
Smita Jha is a partner and Shivaang Maheshwari is an associate at Khaitan & Co.
Disclaimer: The views expressed here are those of the authors and do not necessarily represent the views of NDTV Profit or its editorial team.
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