UPI vs Pix: Unpacking the Similarities

India’s UPI and Brazil’s Pix are transforming the way people make payments, from small street vendors to large shopping malls. People often compare UPI and Pix, amazed by their similarities. But there’s more to them than what meets the eye.

India and Brazil, both major emerging markets and members of the BRICS group (Brazil, Russia, India, China, and South Africa), represent some of the world's largest and fastest-growing economies. These countries share remarkable similarities, including being among the most populous nations worldwide, having a substantial young and technologically adept population, relying heavily on agriculture, and experiencing rapid urbanization.

Additionally, both India and Brazil have historically faced high levels of financial exclusion, with significant portions of their populations lacking access to formal banking services. This has driven the need for innovative financial solutions like UPI and PIX.

Launched in 2016 by the National Payments Corporation of India (NPCI), a not-for-profit company regulated by the Reserve Bank of India, UPI has been a phenomenal success. In 2022, it processed over 59 billion transactions worth $900 billion and dominated 80% of digital payments in India.

Similarly, Pix has become a significant part of people’s lives since its launch in 2020 by the Central Bank of Brazil (Banco Central do Brasil, BCB). In 2022, Pix handled over 10.7 billion transactions worth $500 billion, capturing over 90% of digital payments in the country.

The impact of UPI and Pix is evident in the significant reduction of cash usage in both countries, which has decreased by 10-14%, compared to the global decline of 4% as of 2022. This parallel growth and the similarities in their development paths spark curiosity about the key differences between these two systems.

While UPI and Pix share many similarities in their features and use-cases, such as interoperability, cash withdrawals, buy now, pay later options, and NFC technology for payments, the differences between them are worth exploring.

Transaction limits

Pix has no assigned minimum or maximum transaction limits, except in certain cases.

In contrast, UPI generally has a per-transaction limit of ₹1 lakh, a daily transaction limit of ₹1 lakh, and a cap of around 20 transactions per day. The NPCI defines these limits to prevent fraud.

In fact, Pix allows participating institutions to establish maximum limits on a per-transaction or daily/monthly basis according to their evaluation of fraud risk. This is likely why B2B transactions – traditionally of high-ticket sizes - drive more than 35% of all Pix transfer amounts, despite accounting for less than 3% of all platform transactions.

User IDs

Pix allows users to link bank accounts using various ID formats such as email, phone number, Tax ID, or even random characters like 'abc123abc,' called Keys.

In contrast, UPI uses standardized VPAs (virtual payment addresses) like 'username@xyzbank' as the ID format.

Thus, Pix offers more flexible IDs to link accounts.

Policies and Regulation

In UPI, NPCI sets all the standards, such as transaction limits, security protocols, etc., and thus, all the banks and UPI apps are bound to follow these standards. Any updates or changes to the system are uniformly applied to all participants, ensuring a consistent user experience and security level.

On the other hand, Pix operates in a more decentralized manner. The Central Bank of Brazil only provides the Pix framework, and each bank and app can set up their own policies like transaction limits, interchange fees, security protocols, etc.

This means that a bank in Brazil could offer PIX transactions with unique security features and fee structures that differ from another bank. For example, one bank might require a two-factor authentication process, while another might only need a PIN. Similarly, transaction limits and fees can vary widely between institutions, offering more flexibility but also more variability, which is not allowed in UPI.

User Data Storage

In Pix, user data is stored centrally at the Central Bank of Brazil, allowing the system to quickly find your account details for transactions. So, if you register your phone number with Pix, this information is stored in a central database at the Central Bank. When someone wants to send you money using your phone number, the system quickly finds your account details in this central database.

In UPI, user data is stored in the databases of individual banks or payment providers. So, if you register your phone number with Google Pay, Google Pay's database holds this information. When someone wants to send you money using your phone number, the system has to check Google Pay's database to find your account details.

This centralized storage approach by Pix makes it easier and faster to resolve payment issues since all data is in one place. However, since more data is shared with the central system, it raises privacy and security concerns, which are addressed by the de-centralized storage approach of UPI, potentially enhancing privacy.

Individual & MDR Fees

Neither UPI nor Pix charges individuals for transactions, but in Pix, financial institutions can charge payment settlement fees to merchants.

This means that customers don't pay fees, but merchants (such as stores and businesses) may be charged a fee by their payment processors, known as "acquirers." There's no limit on how much these fees can be. So, if you use Pix to buy something at a store, you won't be charged any fees, but the store might have to pay a fee to the company that processes its payments.

With Pix, since acquirers keep all the fees without sharing, they have a strong incentive to onboard more merchants to use Pix. This leads to more potential fees for acquirers.

This allows institutions to monetize through non-P2P transactions, which is a challenge with UPI, given the strict controls on MDR (Merchant Discount Rate), and consequently, interchange fees.

In India, MDR rules have been revised several times. Initially, person-to-person (P2P) and merchant transactions were allowed to carry limited fees with interchange rates applied. However, in late 2019, India's Ministry of Finance revised guidance to prohibit any customer or merchant fees over UPI, while mandating acceptance for businesses with annual sales exceeding Rs 50 crore (about $7 million). The elimination of UPI fees has sparked ongoing debate in India.

Pix's pricing approach aims to attract merchants by allowing acquirers to retain all fees, potentially leading to a broader network of merchants over time. In contrast, India's UPI focuses on rapid adoption by minimizing costs for everyone, but it may face sustainability challenges. The effectiveness of these different strategies will become clearer as these systems continue to evolve.

Cross Border Payments

NPCI’s international payments division has signed agreements to enable merchant acceptance of UPI in countries including Singapore, Sri Lanka, Mauritius, Bhutan, the UAE, France and Peru. Meanwhile, Pix’s infrastructure is not currently set up to enable instant cross-border payments. However, PagBrasil, a payment collection agent for Pix, has partnered with the BCB and other banks to enable payments in several countries, including Uruguay, Argentina, Chile, and the US state of Florida.

With this progress in cross-border payments, citizens visiting the Eiffel Tower no longer have to pay FX charges when they buy a ticket at the front desk; instead, they can use an app that supports the UPI to pay with their own currency, instantly and securely, as if they were paying for a bus fare back home.

Additionally, Indians can send remittances, including from the UK and US, back home to India using UPI-enabled mobile apps.

Both UPI and Pix share a common vision of reducing reliance on global card networks, which are often foreign, to support their respective countries both politically and economically.

Given UPI's progress in establishing cross-border linkages for real-time payment systems, it is likely that Pix will naturally advance on similar fronts. In the future, we might even see Pix and UPI partnering for cross-border transfers, enabling users to enter a Pix key to send payments to merchants in Brazil from India. As we keenly observe the progress of both systems, it becomes evident that UPI and Pix are as transformative as any other technological advancements of our time.

While the effectiveness of their strategies will become clearer over time, one thing is certain: UPI and Pix have set a new standard for financial inclusion and innovation in the rapidly evolving world of digital payments.

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