As Pix (a payment method created by the Brazilian central bank) climbs to dominate Brazil’s e-commerce sector, across the world in India, unified payment interface (UPI) has made a dramatic change to the payment system there. These two instant payment systems (IPSs) are aimed at speeding up payments and making them less costly whilst removing the intermediaries involved in making payments - both systems have seen a good deal of success and rapid adoption in their countries respectively. In the first quarter of 2024, with over 13 billion transactions per month, the UPI became a leading payment system in India, making up for about 81.8% of India’s total digital payments. In Brazil, e-commerce, which was previously dominated by credit cards flanked by cash and wire transfers, has seen a difference as the use of Pix payment threatens to take over the sector. In December 2023, whilst credit card orders slipped 5% down, orders paid with Pix (which had earlier surged 22% in the first 2 years) was used for a third of all purchases for retails transactions online. These instant IPSs offer quick and secure fund transfers, promoting customer satisfaction and operational efficiency in the booming e-commerce sector.
According to the Banco Central do Brasil (Central Bank of Brazil), Pix surpassed traditional payment methods last year - accounting for around 76.4% of all payment transactions in 2024. Developed and launched by the Central Bank of Brazil in 2020, the instant payment system has taken over Brazil’s e-commerce sector whereby providing quick, seamless and cost-effective round-the-clock services. Similar to UPI, Pix allows users to make transactions using their IDs, such as phone numbers, QR codes, email addresses or randomised Pix keys. Many studies, notably the ones by InfoMoney and Mobile Time, have reported the rise of Pix and the weakening of cash. Furthermore, research by the Central Bank of Brazil shows a significant fall in cash usage over the past few years and a concurrent surge in Pix’s popularity (with over 6billion transactions a month) becoming the preferred payment method in the country; the study had reported a drop in cash usage from 76.6% in 2019 to 40.5% in 2023. However, some complaints have been made, including the lack of a built-in customer dispute resolution mechanism (as seen in credit cards and limited awareness in the rural population). But these issues should be resolved by Pix’s user-friendly interface, which not only offers accessibility to people of all ages and people with limited technological experience but also ensures smooth transactions at a low cost for merchants and no fee for individuals. Pix, notably, has an efficient measure that uses advanced encryption and real-time verification to ensure safe and secure transactions.
Meanwhile, developed by the National Payments Corporation of India and regulated by the Reserved Bank of India, UPI became the most popular payment method in India when it was launched in 2016. However, the rapid adoption of UPI cannot but be attributed to the advantages it offers over other payment methods - generally, following the 2019 COVID-19 pandemic, India witnessed a surge in digital payments involving the National Electronic Fund Transfer (NEFT), the Real Time Gross Settlement (RTGS), the Immediate Payment System (IMPS) and the UPI. Furthermore, these real-time payment systems compete in value and volume, offering 24/7 instant fund transfer service but, unlike others, UPI provides real-time payment service with zero transaction fees. With the use of recipient’s ID (which may be a QR code, virtual payment address or mobile number), UPI simplifies transfer whereby eliminating the need for bank account details whilst ensuring safe and secure transactions. UPI’s open infrastructure allows third-party developers (such as tech companies and banks) to build apps and integrate them with UPI, thus providing a dynamic digital payment ecosystem with established interoperability and integration that benefits both users and businesses. Its user-friendly interface simplifies payment experience whilst maintaining robust security via two-factor authentication; it also permits multiple-party transactability, that is, it integrates multiple bank accounts into a single platform whereby enabling users to manage their finances and initiate interbank transactions without the need to maintain multiple accounts or download multiple bank apps. And, whilst technical issues alongside lack of technical know-how have been raised by some people, the key features of UPI guarantee financial inclusion, promote a cashless economy and boost India’s e-commerce sector.
Source: Central Bank of Brazil/Teamblockchain
India’s UPI vs Brazil’s Pix
Both IPSs share the same basic precepts and the common goals of modernising the payment infrastructure, promoting financial inclusion and improving the payment experience. Nonetheless, there are slight differences between the two real-time payment (RTP) systems. Whilst UPI is a decentralised payment system regulated by the Reserve Bank of India (RBI), Pix is a centralised system owned and regulated by the Central Bank of Brazil, mandating it for all institutions with more than 500,000 active customers. Moreover, unlike centralised addressing systems where a centralised directory for user data is maintained by the regulating body, UPI’s decentralised nature allows user data to be stored in the database of individual providers. India’s UPI allows the integration of diverse mobile payment apps, providing users with a choice of UPI-supported options developed by third-party providers. But, although Pix also promotes interoperability, it is integrated into banking and financial apps under the control of the Central Bank and only enables direct transactions within an app.
What can stablecoins and tokenised deposits learn?
The architecture and operational principles of instant payment systems offer certain benefits that could plug the defects in the functionality of stablecoins and tokenised deposits. Both UPI and Pix are operated by established institutions and they adhere to strict regulatory standards; stablecoins and tokenised deposits could themselves benefit from adopting similar compliance measures to ensure trust and legitimacy within the financial ecosystem. IPSs prioritise security and reliability, offering transparent operational processes that are overseen by financial authorities - stablecoins and tokenised deposits can facilitate seamless transactions between financial institutions by imitating IPSs’ design which enables smooth integration and interoperability. And these digital assets can adopt similar measures as seen in IPSs to protect consumers from fraud and misuse; instant payment systems are designed to handle a high volume of transactions efficiently and reduce transaction costs for users. Certainly, for stablecoins and tokenised deposits, scalability is an issue that should be tackled to enhance their functionality, trustworthiness and adoption in the financial ecosystem. Interestingly, with the success of UPI and Pix, other countries are working on upgrading their payment systems to enhance efficiency and security, for example:· FedNow (USA)
Launched in July 2023, the US Federal Reserve FedNow Service was designed and introduced to provide uninterrupted 24/7 all-year services. This interbank real-time payment system ensures payment integrity and data security through its fraud prevention tools. Despite being relatively new, FedNow’s future depends on its adoption of features that facilitate safe and seamless transactions at low or no cost, promote financial inclusion, and boost the e-commerce sector of the nation.
· New Payment Platform (Australia)
To provide a fast, data-rich payment platform that supports real-time transactions, Australia launched the New Payment Platform (NPP) in 2018. The NPP, designed to facilitate both simple and complex payments, allows payment to be made using PayID - a unique entity that can be a phone number, email or Australian business number.
Other RTP systems include, but are not limited to, the European Central Bank’s TARGET Instant Payment Settlement (TIPS) System, the China National Clearing Centre’s Internet Banking Payment System (IBPS) and the Singapore Electronic Payment Roadmap (SGD PayNow). Without doubt, Brazil's Pix and India's UPI both showcase the transformative power of instant payment systems (IPSs), driving financial inclusion and reshaping digital transactions with speed, cost-efficiency and accessibility. UPI leads India's payments with 13 billion monthly transactions, whilst Pix revolutionises Brazil's e-commerce sector. Furthermore, their success offers critical lessons for stablecoins and tokenised deposits: embrace regulatory compliance, scalability and interoperability to build trust and usability. And, given that globally cross border payments are massive (at over $23trillion p.a.), the opportunity is huge for new payment operators looking to modernise payments which, in turn, highlights a key takeaway - that is, real-time, inclusive financial systems are no longer optional, they are the future.
This article first appeared in Digital Bytes (28th of January, 2025), a weekly newsletter by Jonny Fry of Team Blockchain.