Why India must build an alternative to SWIFT payment system?

The world is going through horrible times. After the pandemic, the Russian invasion of Ukraine has pushed the global economy into uncertainty. However, like every crisis, the ongoing conflict also provides many lessons to modern nation states. A huge country like India should get its act together to face such eventualities. Just after the invasion, the US, EU and many other nations has imposed serious sanctions against Russia. In many ways, these sanctions are punitive and aimed at cutting off Russia from the global economic system.

For instance, many Russian banks barred from using SWIFT, the global messaging system that connects thousands of financial institutions around the world. This is the second instance when any nation has been cut off from the SWIFT. Earlier in 2012, Iran was excluded due to its nuclear programme. Moreover, American card network operators like Visa, Mastercard, and American Express have suspended their services in Russia in light of the sanctions imposed on Moscow by the US. The suspension means that any cards issued by banks globally on these networks will not work in Russia at point-of-sale terminals or ATMs. Also, cards issued by Russian banks on these networks will also stop working outside the country.

Without venturing into the merits and demerits of these steps, it is safe to assume that financial system can be weaponised anytime to impose huge costs on an economy. Against this backdrop, it will be wise if India creates an alternative payment framework given its geopolitical considerations. A unique technology stack supporting various payment methods is a must for India to mitigate vulnerabilities arising from war like situation or natural disasters. Hearteningly, the country has taken many steps in this regard to reduce dependencies on global payment service providers.

Unified Payments Interface (UPI) is an achievement which makes the country resilient in the payment landscape. Though the UPI transactions are currently dominated by multinationals, there are also many Indian-promoted entities in this space. Also, UPI doesn't have any cross-border dependency. Therefore, India is insulated in the domestic transaction space even if tomorrow global providers withdraw their services.

Similarly, RuPay debit card under the NPCI makes India less vulnerable to external shocks. Already, RuPay card processes far more transactions as compared to Visa or Mastercard. Also, fund transfer within the country through internet banking can be done through UPI. Therefore, the country has certainly developed payment infrastructure that can withstand external shock. Any move to cripple Indian economy through cutting of from global trade may not have desired outcomes due to this robust infrastructure. Interestingly, technology is playing a very critical role in designing, developing and maintaining these frameworks.

India's engineering prowess can take these steps a notch above by developing a global payment interface (GPI). The Reserve Bank of India (RBI) is planning to come up with digital rupee next year. Development of GPI with integration of blockchain-powered e-rupee can go a long way in ensuring stability to the payment framework of India with the world. Given the evolving geopolitical environment, India should insulate itself from these critical vulnerabilities as soon as possible and as much as possible.