## INDIA’S FRICTIONLESS PAYMENTS

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**Canonical URL:** [INDIA’S FRICTIONLESS PAYMENTS](https://www.imf.org/-/media/files/publications/fandd/article/2025/09/kirti.pdf)

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### Overview and context
- India launched the Unified Payments Interface (UPI) in 2016 to enable payments to be sent and received across all participating apps and banks.
- UPI became the largest real-time payment system in the world by volume, processing more than 19 billion transactions every month.
- The UPI operator launched BHIM, a simple public app, to introduce the system to new users.
- More than 200 apps and most banks entered the market as UPI gained traction.

### Key empirical findings
- Interoperability improved user experience and spurred innovation by allowing consumers to choose apps based on ease of use, reliability, or language options, and by reducing lock-in to single providers.
- Most UPI transactions take place across different apps, which would not be possible under closed-loop systems.
- Evidence from two episodes indicates interoperability was central to the growth of digital payments:
  - 2016 banknote demonetization prompted many first-time digital payment users; they largely chose interoperable UPI over closed-loop apps, with faster growth driven by cross-app transactions.
  - In 2017, after a regulatory push, a leading closed-loop provider joined UPI, merging two large preexisting networks; in districts with the most initial fragmentation, digital payments grew faster.
- Network effects: When two networks combined, both were used more and transactions between them increased, raising total digital payments relative to proxies for cash usage.
- Reliability improvements: Apps with lower transaction failure rates attracted more users, and reliability improved across the market over time.

### Quantitative and market structure details
- UPI processes more than 19 billion transactions every month.
- More than 200 apps participate in the UPI ecosystem.
- Over 95 percent of UPI transactions are initiated using only three apps.
- In about half of UPI transactions, both payer and payee use the same app.

### Complementary enablers and conditions
- Other contributing factors to India’s digital payments expansion included:
  - A broad digital ID system.
  - Financial inclusion programs.
  - Affordable mobile internet.
- Many users initially joined through trusted bank apps; interoperability enabled switching to newer apps without requiring others to shift simultaneously.

### Policy implications and recommendations
- Build open infrastructure: Interoperability fosters user choice and innovation and can turn fragmented systems into connected networks.
- Invest in digital enablers: Affordable mobile data, national ID systems, and broad access to banking are essential complements to interoperable payment rails.
- Support early adoption: A public app can help build momentum among new users.
- Monitor market outcomes and tailor regulation: Authorities should track usage patterns, app dominance, and switching costs to preserve user choice. Examples of provider tactics to limit switching include QR code branding and bundled services.

### Broader benefits and conclusion
- Interoperability strengthens trust, accelerates adoption of digital payments, and levels the playing field by allowing consumers to use preferred apps while ensuring transactions proceed across providers.
- The practical benefit is everyday convenience: users can pay instantly with their preferred provider and receive a digital receipt, enabling broader digital transformation without creating new silos.

*Alex Copestake, Divya Kirti, and María Soledad Martínez Pería; F&D, September 2025.*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2025/09/kirti.pdf_