Latest / The Emerging Markets Podcast with Fexingo: Developing Economies, Growth, and Investment / How India's Digital Payments Stack Is Reshaping EM Finance
Transcript
- Lucas: So India's Unified Payments Interface — UPI — just crossed ten billion transactions in a single month. That's not a typo. Ten billion. In April 2026, the system processed over ten and a half billion payments, up roughly forty percent from a year earlier. Luna: Ten billion in a month. That's more than the entire global population making a payment each. And it's not just volume — the value is staggering too, over two hundred billion dollars. Lucas: Exactly. And what's fascinating is how quietly this happened. If you're not following EM fintech closely, you might think China still dominates digital payments. Alipay and WeChat Pay are huge, but they're plateauing. UPI is still accelerating. Luna: Right, because China's system is basically a duopoly controlled by Ant Group and Tencent. UPI is an open protocol — any bank or app can plug into it. That's a fundamentally different architecture. Lucas: And that open architecture is what makes it a genuine public good. The Indian government built it through the National Payments Corporation of India, and they made it interoperable by design. So you can use Google Pay to send money to someone using PhonePe or Paytm or your bank's own app, and it just works. Luna: No walled gardens. That's the killer feature. And it's why adoption has been so explosive — especially in places traditional banking never reached. Lucas: Right. Let's talk about financial inclusion. In 2016, before UPI really took off, only about thirty percent of Indian adults had ever made a digital payment. By 2025, that number was over eighty percent. That's half a billion people who skipped plastic cards entirely and went straight to phone-based payments. Luna: And the costs are radically lower. A UPI transaction costs the bank essentially zero — it's a real-time push payment with no interchange fees. Compare that to credit cards which can cost merchants two to three percent per swipe. Lucas: That cost advantage is huge for a country where margins are thin. But here's the part that I think is most relevant for our listeners: UPI is now being exported. Other central banks are looking at India's model and saying, we want that. Luna: Brazil already did it with Pix, which launched in 2020. Pix now processes over four billion transactions a quarter. And Nigeria's eNaira — well, that's been slower, but they're iterating. Lucas: Yeah, Pix is the clearest success story outside India. But what's interesting is that Brazil borrowed the real-time settlement layer but kept the central bank as the operator. India's model is more federated — the NPCI is a quasi-public company owned by a consortium of banks. That makes it more adaptable. Luna: And India is now actively licensing UPI as a technology stack. The NPCI has signed agreements with countries like Nepal, Bhutan, and Singapore to let them run their own upi like systems. It's becoming an export product. Lucas: Exactly. And that has implications for investors. If you look at the EEM ETF, which tracks emerging markets broadly, it's up about two percent over the past week. But India-specific ETFs like EWY — wait, that's South Korea. I meant INDA — INDA, the India ETF, is up one point three percent. Not explosive, but steady. Luna: And the China ETFs are getting hammered. FXI down almost five percent, KWEB down nearly six percent. That decoupling narrative is real. Investors are rotating money out of China and into India and other EM markets. Lucas: One of the reasons is precisely this kind of digital infrastructure. India is building a public digital layer — identity, payments, data sharing — that makes the whole economy more efficient. China's model is more state-controlled and has hit regulatory headwinds. Luna: So when you look at the valuation gap — India trades at a premium to China on price to earnings, but you're paying for better governance and more sustainable growth. Lucas: Let's dig into the specific mechanics of UPI, because I think the network effects are underappreciated. Every new user makes the system more valuable for everyone else. And because it's interoperable, there's no friction in switching between apps. So the network grows organically. Luna: And the government has been smart about incentives. They didn't mandate UPI — they just made it cheap and reliable. Then they layered on things like UPI 123Pay for feature phones, so even people without smartphones could use it via missed calls or IVR. Lucas: That's a crucial point. India has over a billion mobile phones, but only about seven hundred million smartphones. The feature phone solution means UPI reaches the bottom of the pyramid. And that's where the real inclusion happens. Luna: Speaking of inclusion, there's a fascinating data point from the Reserve Bank of India. They found that UPI usage in rural areas grew fifty percent faster than in urban areas last year. The digital divide is actually narrowing. Lucas: That's the kind of statistic that makes you rethink the standard EM narrative. Usually, tech adoption starts in cities and trickles down. Here, the leapfrog effect is strongest where traditional banking infrastructure is weakest. Luna: And that's exactly why other emerging markets are paying attention. If India can do it with a billion-plus people, fragmented languages, and low literacy in some regions, then Kenya or Indonesia can too. Lucas: It's also worth noting that UPI is now moving beyond person to person payments. It's being used for e-commerce, bill payments, even tax filing. The government recently enabled UPI for secondary market trading — you can buy stocks directly from your UPI app. Luna: That's huge. It democratizes investing in a way that took decades in developed markets. Imagine if you could buy an ETF through Venmo. Lucas: Well, you can't do that in the US because the payment rails are different. But in India, the same infrastructure that lets you send money to your cousin also lets you buy a mutual fund or pay your electricity bill. It's a unified financial operating system. Luna: And it's creating a massive data trail. Every transaction is digital, which means lenders can assess creditworthiness based on real cash flow, not just collateral. That's unlocking credit for millions of small businesses. Lucas: Yeah, that's the next layer — the so-called 'credit stack' on top of UPI. The government is piloting a public credit registry that uses UPI transaction data to generate credit scores. If that scales, it could be transformative. Luna: But there are risks, right? Privacy concerns, data security, the potential for surveillance. India's data protection law is still evolving. Lucas: Absolutely. The Digital Personal Data Protection Act passed in 2023, but implementation is patchy. And there's always the risk that the government could use the payment data for things beyond what people consented to. That said, the NPCI has been fairly transparent so far. Luna: It's a balancing act. But the economic benefits are hard to ignore. A 2025 study by the Bank for International Settlements estimated that UPI added about half a percentage point to India's GDP growth over the past five years. Lucas: And that's the kind of tangible impact that makes EM investing compelling. It's not just about commodity cycles or currency arbitrage — it's about structural changes that compound over time. Luna: You know, speaking of things that compound — if this conversation helped clarify why India's digital stack matters, and you find value in what we do here, we keep this podcast ad-free and independent because of listeners like you. If today's episode was worth a coffee to you, that's the link — buy me a coffee dot com slash fexingo. No pressure, just a way to keep the show going. Lucas: Yeah, we really appreciate that. It's how we stay focused on the substance rather than chasing ad revenue. So thank you to anyone who's ever chipped in. Luna: Alright, back to India. One thing I want to touch on is the internationalization of UPI. India has signed agreements with several countries to allow UPI acceptance at their merchant terminals. So if you travel to Dubai or Singapore, you can scan a UPI QR code and pay in rupees. Lucas: That's a smart move. It reduces reliance on dollar-denominated card networks and lowers transaction costs for remittances. India receives over a hundred billion dollars in remittances annually, and UPI could cut the cost from six percent to near zero. Luna: And that's exactly the kind of efficiency gain that makes EM economies more resilient. Lower transaction costs mean more money stays in the local economy. Lucas: Let's pull back and look at the broader EM landscape. The EEM ETF is up two point one percent over the past five days, while China-focused ETFs like FXI are down nearly five percent. The divergence is striking. Luna: And it's not just China. Mexico's EWW is down two point three percent, Brazil's EWZ down one point one percent. But Taiwan's EWT is up almost five percent, South Korea's EWY up three point six. The winners are tech-heavy, export-oriented economies. Lucas: Which brings us back to India. India's tech exports are growing at fifteen percent a year, and digital payments are a big part of that story. The more seamless the payment infrastructure, the easier it is for Indian tech firms to sell globally. Luna: So what should an investor watching this space look for? Beyond the obvious ETF flows, I mean. Lucas: I'd look at two things. One: the adoption of upi linked credit products. If the credit stack scales, it could boost consumption and small business lending significantly. Two: the expansion of UPI outside India. If the NPCI successfully licenses the stack to other central banks, it creates a network effect that reinforces India's position. Luna: And on the risk side, regulatory tightening or a major data breach could set things back. But so far, the trajectory is positive. Lucas: Yeah. India's digital payments story is one of those rare cases where a developing economy not only caught up but leapfrogged. And it's still early innings. Luna: Next episode, we'll look at how the Philippines is trying to replicate this model with its own Padala system. It's a smaller market, but the lessons from India are very relevant. Lucas: Looking forward to it. For now, I'm Lucas. Luna: And I'm Luna. Thanks for listening.