UPI, RuPay, and India’s Digital Bid for South Asian Financial Integration

Expert SpeakRaisina Debates

Published on Jun 26, 2026

As UPI and RuPay extend across South Asia, India is building a rupee-anchored financial architecture, but reciprocity and rollout gaps remain

On June 06, 2026, India and Nepal operationalised person-to-person digital transactions, enabling their citizens to directly transfer cross-border payments through their mobile numbers, virtual payment addresses, or UPI IDs. The latest development underscores India’s steadily expanding payment infrastructure across its neighbours — Bhutan, Nepal, Sri Lanka, and the Maldives — through the Unified Payments Interface (UPI) and the RuPay card network. India is deploying these tools of financial connectivity to promote mutual economic growth, extend its infrastructure presence, and build leverage and interdependencies in the neighbourhood. Despite this success, India will have to address its shortcomings to enhance robust integration and financial connectivity.

The New Instruments in India’s Geo-economic Toolkit

With its Neighbourhood First policy, India has brought connectivity, geo-economics, and interdependencies to the forefront of its outreach. It is using economic tools like market access and development cooperation to further its strategic interests. This serves three purposes: fuel India’s growth, push back against China, and create leverage and stability in relationships with neighbours.

Financial connectivity has become an important part of India’s neighbourhood policy. Two instruments have been critical in this sector: UPI and RuPay.

In this regard, financial connectivity has become an important part of India’s neighbourhood policy. Two instruments have been critical in this sector: UPI and RuPay. UPI is India’s real-time, interbank mobile payment system that enables instant transfers between bank accounts; RuPay is India’s domestic card network, accepted at ATMs and point-of-sale terminals, offering an alternative to international card schemes. Extending its digital model and infrastructure to neighbouring countries fosters financial integration, reduces payment frictions, and makes cross-border payments less expensive and more straightforward.

These digital payments, spread across sectors such as trade, tourism, remittances, and retail commerce, contribute to and shape the daily commerce and lives of common people. In fact, India’s RuPay and UPI are enabling its neighbours to operate within an India-designed, India-shaped, and India-governed financial architecture. This matters strategically, as India will be able to set standards and operate the region’s payment infrastructure, which currently relies extensively on Western financial rails and links.

The digital push is significantly beneficial for India’s broader ambitions. While physical connectivity projects have consistently suffered from implementation deficits and politicisation in the neighbourhood, digital financial infrastructure, focused on regulatory coordination and interoperability agreements, is better positioned to move quickly. That said, financial connectivity could serve as a backward linkage to several physical infrastructure projects designed to increase trade and economic integration, such as land bridges, air routes, and border infrastructure and roads. With intra-regional trade at barely five percent, easy cross-border transactions could help promote trade.

While physical connectivity projects have consistently suffered from implementation deficits and politicisation in the neighbourhood, digital financial infrastructure, focused on regulatory coordination and interoperability agreements, is better positioned to move quickly.

The Rupee-Linked Architecture of Financial Interdependence

The full significance of UPI and RuPay can be understood by looking at the Reserve Bank of India’s push for rupee internationalisation. In July 2022, the RBI introduced a framework for trade invoicing and settlement in Indian rupees, with Special Rupee Vostro Accounts — rupee-denominated accounts held by foreign banks in Indian banks to facilitate bilateral trade settlement. In 2025, authorised dealer banks were permitted to lend directly in rupees to banks and people of Nepal, Bhutan, and Sri Lanka to promote cross-border trade.

UPI and RuPay could be the retail layer of this broader architecture.Indian loans and credit lines, which historically flowed in dollars, are now being disbursed and repaid in rupees, keeping capital flows within an Indian-governed financial ecosystem. For South Asian economies facing recurring dollar pressures, this architecture carries practical value, especially with loan repayments and trade. Table 1 below demonstrates India’s trade with neighbouring countries. For India too, this mechanism helps with de-dollarisation and spares the need to use its foreign reserves.

Table 1: India’s Bilateral Trade in Million USD (2024-25)

Source:Authors’ collation from theMinistry of Commerce and Trade

Indians also contribute significantly to tourism in the region, both in absolute numbers and in total percentage (see Table 2). In this regard, RuPay and UPI payments could facilitate direct and quick financial transactions, boosting the local economy and tourism sector without the need for double conversion. The air travel and hospitality sectors also become cost-effective with the elimination of double-currency conversion, especially given the relatively cheaper transaction fees of UPI and RuPay compared to other international cards and payments. This will also reduce the unregulated and illegal flow of USD in the region.

Table 2: Indian Tourist Arrivals in the Neighbourhood (2025)

Source:Authors’ own compilation from multiple sources

With UPI and RuPay, Indian tourists will be free of the need to carry foreign or Indian cash. In countries like Nepal and Bhutan, where only certain denominations and quantities of Indian notes are accepted, digital transactions ease travel. This would also limit counterfeit currency circulation in India, Nepal, and Bhutan. Digital transactions would also protect citizens of both Himalayan nations from Indian policy changes and fluctuations, such as demonetisation.

Ground-Level Integration: What the Data Says

Bhutan remains the most integrated of all four countries, despite adopting the limited channel of Person-to-Merchant transactions. This is due to its monetary and regulatory environment aligning with India’s system, and the Royal Monetary Authority of Bhutan directly running the domestic rail of the digital payment network. Its small, centralised financial ecosystem has also contributed to quick decision-making and ground-level adoption. With its special relationship and dependency on India, Bhutan has not only accepted RuPay cards but is also one of only two countries (the other being Mauritius) to issue RuPay cards to its citizens. Its currency peg (1 INR = 1 Ngl) removes exchange-rate friction, further easing cross-border transactions. In 2024, UPI accounted for financial transactions worth 6.6 million INR and RuPay contributed to financial transactions worth 205 million INR.

Table 3: UPI and RuPay Integration Status (as of May 2026)

Source:Authors’ own

Nepal has the most geographic reach with UPI, with acceptance spanning all 77 districts. Integration has advanced quickly since March 2024, when NIPL partnered with Fonepay to launch cross-border QR-based UPI payments and collaborated with Nepal SBI Bank on RuPay card acceptance. UPI initially targeted Indian tourists, but since June 2026, it has expanded to people-to-people transactions and remittances. For Nepal, where remittances contribute nearly 25 percent of GDP and finance over 80 percent of the trade deficit, this move reduces reliance on informal channels like hundi. In fact, a large number of Nepali nationals working in India (around 8 million) will find this adoption significantly beneficial. The pegging of the currency (1 INR = 1.6 NPR) has removed exchange-rate friction. According to media reports, between mid-February and mid-March alone, over 550 million Nepali Rs (around 343 million INR) were transferred through cross-border QR transactions.

UPI and RuPay were launched in Sri Lanka in February 2024 using LankaQR and LankaPay, respectively, with UPI focused on boosting tourism. The rollout has lagged behind targets; LankaPay had projected 65,000 merchant onboardings by March 2024, but coverage remains limited to premium hotel and retail chains, mostly in Colombo. In the Maldives, RuPay has been live since October 2024. Discussions to implement UPI continue; a network-to-network agreement between NIPL and the Maldives Monetary Authority was signed during Prime Minister Modi’s July 2025 visit. Across both cases, the gap between institutional launch and broad commercial adoption remains the defining limitation.

Limitations and Challenges

Despite this success, India will have to solve some common challenges to enhance connectivity and expand the scope of digital payments in the region. First, reciprocity remains largely absent with UPI payments. Years after its implementation, nationals of Sri Lanka, Nepal, and Bhutan are still unable to use UPI in India. But India’s June 2026 agreement with Nepal and recent assurances to Bhutan and Sri Lanka demonstrate that the focus is now shifting to ensuring reciprocity.

For this architecture to fulfil its potential, India needs to close the already visible gaps: reciprocal access, delayed negotiation and implementation, and weak rollouts.

Second, technical issues over who bears the costs of Merchant Discount Rate (MDR) and transaction fees have contributed to prolonged discussions and delayed implementation across all countries. Finally, in countries like Sri Lanka and the Maldives, where financial and economic dependence on India is relatively low and local currencies are not pegged, digital payments with India are less popular and subject to fluctuations. Sri Lanka, in particular, shows little awareness and enthusiasm among merchants for local rollouts. Similar challenges could be encountered in the Maldives.

India’s push for UPI and RuPay has seen significant progress in recent years. Financial connectivity is creating interdependencies that operate at the level of daily commerce and everyday lives. Retail payments through UPI and RuPay, trade settlement through Special Rupee Vostro Accounts, and development lending in rupees can help establish a coherent, India-centred financial architecture across the neighbourhood. For South Asian economies facing forex pressures and thin reserve buffers, the practical value of lower transaction costs, formalised payment channels, and reduced dollar dependency is real. But for this architecture to fulfil its potential, India needs to close the already visible gaps: reciprocal access, delayed negotiation and implementation, and weak rollouts.

Aditya Gowdara Shivamurthyis an Associate Fellow with the Strategic Studies Programme at the Observer Research Foundation.

Madhav Ramanis a Research Intern with the Strategic Studies Programme at the Observer Research Foundation. He is pursuing an Integrated Program in Management from the Indian Institute of Management, Indore.

Disclaimer: The authors acknowledge the use of Grammarly for language refinement.

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Authors

Aditya Gowdara Shivamurthy

Aditya Gowdara Shivamurthy is an Associate Fellow with the Strategic Studies Programme’s Neighbourhood Studies Initiative. 
He focuses on strategic and security-related developments in the South Asian …

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Madhav Raman

Madhav Raman is a Research Intern with the Strategic Studies Programme at the Observer Research Foundation. He is pursuing an Integrated Program in Management from …

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