ECONOMY

 

Indian UPI Opens a New Door for Russian Tourists in Sri Lanka

Colombo / New Delhi / Moscow — In a quiet but strategically significant shift, Sri Lanka is preparing to benefit from a financial workaround born out of global sanctions and regional cooperation. The decision to allow Indian Unified Payments Interface (UPI) transactions to be used by Russian tourists in Sri Lanka could reshape the island’s post-crisis tourism recovery, while subtly altering the geopolitical geometry of payments in South Asia.

For nearly three years, Russian travellers have faced a practical but powerful barrier abroad: the inability to use Visa and Mastercard, following Western sanctions imposed after the Ukraine war. For destinations heavily dependent on tourism—including Sri Lanka—this has translated into lost spending, logistical headaches, and missed opportunities, even when Russian tourists were willing to travel.

Now, Indian UPI—originally designed as a domestic, real-time digital payment system—has emerged as an unexpected bridge.

Sanctions and the Tourist’s Dilemma

Since 2022, Russian banks have been largely disconnected from global card networks. While alternatives such as China’s UnionPay or Russia’s MIR system exist, their acceptance outside a limited number of countries remains patchy.

For Russian tourists, the reality has been awkward and often humiliating: carrying large amounts of cash, struggling with currency exchange, or relying on informal arrangements with hotels and tour operators. In destinations like Sri Lanka—where digital payments, QR codes, and card transactions are now the norm—this mismatch has become a structural deterrent.

Tour operators in Colombo, Galle, and the East Coast report that Russian tourists frequently cut short their stays, avoid high-end services, or restrict spending simply because payment mechanisms are unreliable.

In an industry where tourism receipts matter more than arrival numbers, this has been a quiet but costly problem.

Why UPI Changes the Equation

India’s UPI system processes billions of transactions every month, linking bank accounts directly through QR codes and mobile apps. Over the last two years, India has aggressively internationalised UPI, integrating it with payment systems in countries such as Singapore, the UAE, France, Nepal, and Sri Lanka.

The innovation now lies in allowing Russian tourists to access UPI-linked payment mechanisms, either through:

• Rupee-denominated wallets;

• Bank intermediaries operating outside sanction jurisdictions;

• Or payment gateways that do not rely on Visa or Mastercard rails.

For Russian visitors, this effectively restores cashless functionality, allowing them to pay for hotels, transport, restaurants, and retail purchases across Sri Lanka—provided merchants are UPI-enabled.

For Sri Lanka, the implications are substantial.

A Tourism Market That Matters

Before the pandemic and the Ukraine war, Russia was among Sri Lanka’s top five source markets for tourists. Russian travellers are typically long-stay visitors, particularly in coastal areas such as Arugam Bay, Unawatuna, Mirissa, and Trincomalee. They rent villas, stay for weeks rather than days, and spend consistently across local economies.

Even during the height of sanctions, Russian arrivals continued—often defying airline, insurance, and payment obstacles. What declined was not footfall, but spending capacity.

Industry data suggests that a Russian tourist with seamless payment access spends 30–40 per cent more per visit than one reliant on cash.

UPI, therefore, is not merely a convenience. It is a revenue multiplier.

Workarounds Already in Use

In the absence of formal solutions, some Russian tourists have turned to creative—though imperfect—alternatives. These include obtaining Visa or Mastercard accounts in third countries such as Turkmenistan, Tajikistan, Armenia, or Kazakhstan, where regulatory frameworks still allow limited card issuance to Russian nationals.

While legal, these arrangements are cumbersome, expensive, and often unreliable. Cards issued in such jurisdictions may face limits, sudden freezes, or enhanced scrutiny. For casual tourists, this is hardly a practical solution.

UPI, by contrast, offers a low-friction, scalable alternative, particularly when backed by Indian financial infrastructure and bilateral cooperation.

India’s Strategic Play

For India, the international expansion of UPI is about far more than tourism. It is a strategic effort to:

• Reduce dependence on Western-dominated payment networks;

• Export digital public infrastructure;

• Strengthen economic influence across the Global South.

Allowing Russian tourists to use UPI in Sri Lanka serves all three objectives. It positions India as a neutral financial intermediary at a time when geopolitical fault lines are hardening.

Crucially, UPI does not violate sanctions regimes, as it does not process transactions through US or EU-controlled card networks. Payments are routed through Indian banks and settlement systems, providing a legally compliant corridor for everyday commerce.

This nuance explains why UPI is increasingly attractive to countries navigating between Western sanctions and non-Western partnerships.

Sri Lanka’s Calculated Advantage

Sri Lanka, for its part, has little appetite for geopolitical theatrics. Its interest is practical: reviving tourism revenue, stabilising foreign exchange inflows, and supporting small businesses still recovering from economic collapse.

By allowing Russian tourists to use UPI:

• Hotels reduce cash-handling risks;

• Restaurants improve transaction speed and transparency;

• Tax compliance becomes easier through digital records;

• Local merchants gain access to a wider customer base.

Importantly, UPI acceptance already exists in Sri Lanka for Indian tourists. Extending its utility to Russian visitors requires policy clarity rather than infrastructural overhaul.

Compliance and Oversight

Skeptics will inevitably raise concerns about sanctions evasion, money laundering, and regulatory exposure. Sri Lankan authorities insist that these risks can be mitigated through:

• Transaction caps;

• Enhanced know-your-customer (KYC) requirements;

• Monitoring through licensed payment service providers.

UPI transactions are traceable, auditable, and subject to oversight—arguably more transparent than cash-based tourism, which flourished during the sanctions period out of necessity.

From a regulatory perspective, UPI is not a loophole; it is a controlled channel.

A Boost for the Informal Economy—Made Formal

One overlooked benefit is the formalisation of spending in areas where Russian tourists traditionally cluster. Beach towns and surf hubs often operate on semi-cash economies. Digital payments via UPI could bring these transactions into the formal sector, improving:

• Income reporting;

• Local government revenue;

• Financial inclusion for small vendors.

For a country rebuilding fiscal credibility, this is no small gain.

Geopolitics Without the Noise

Sri Lanka has long walked a careful line between global powers. Allowing UPI payments for Russian tourists does not represent an ideological shift, but a transactional adaptation to global realities.

Western tourists will continue to use Visa and Mastercard. Indian tourists will use UPI. Chinese visitors may use UnionPay or Alipay. Russian tourists, increasingly, will use UPI.

In a fragmented global payments landscape, flexibility is economic survival.

What Comes Next

The success of this initiative will depend on execution. Clear communication to tourists, training for merchants, and coordination between banks will determine whether UPI becomes a niche option or a mainstream tool.

Tourism officials are optimistic. Airlines, hotel chains, and tour operators have already begun adjusting marketing strategies aimed at Russian travellers, highlighting “cashless convenience” as a selling point.

If implemented effectively, UPI could help Sri Lanka recapture a high-value tourism segment without courting political controversy.

A Quiet Win for Pragmatism

In an era when global finance is increasingly politicised, the UPI solution stands out for its simplicity. It does not challenge sanctions, defy alliances, or provoke headlines. It simply allows tourists to pay for a meal, a hotel room, or a surf lesson.

For Sri Lanka, still recovering from economic trauma, that is more than enough.

Sometimes, economic recovery does not arrive through grand summits or rescue packages—but through a QR code at a beachside café, scanned by a tourist who no longer has to ask, “Do you accept cash only?”