Integrating Fragmented Networks: The Value of Interoperability in Money and Payments
IMF Working Papers, June 27, 2025
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- Integrating Fragmented Networks: The Value of Interoperability in Money and Payments
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Bibliographic details
- Authors: Alexander Copestake, Divya Kirti, Maria Soledad Martinez Peria, Yao Zeng
- Published: June 27, 2025
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798229013857.001
Key findings and summary
- Payments technologies present an economic dilemma: network effects can produce a small number of dominant platforms, while efforts to increase choice can risk market fragmentation.
- Using data from India’s Unified Payments Interface—the world’s largest fast payment system by volume—and from a major pre-existing fintech firm, the paper finds that when the two networks became interoperable, overall usage of digital payments rose.
- The observed increase in usage was concentrated in regions where digital payments were more fragmented across platforms ex ante.
- The authors’ model of payment choice implies that the unification of networks increased total usage of digital payments by more than 50% in the year after integration.
Data, scope, and methodology
- Data sources:
- India’s Unified Payments Interface (UPI), described as the world’s largest fast payment system by volume.
- Transaction data from a major pre-existing fintech firm.
- Empirical focus: comparison of digital payments usage before and after the interoperability integration between the two networks.
- The study develops and uses a model of payment choice to interpret heterogeneous regional effects and quantify aggregate impacts of interoperability.
Quantitative impacts and evidence
- Aggregate effect: unification of networks increased total usage of digital payments by more than 50% in the year after integration.
- Distributional effect: increases were driven by regions with greater ex ante fragmentation across payment platforms.
Policy implications and interpretation
- Interoperability can help reconcile the trade-off between concentration (from network effects) and the risks of fragmentation caused by increasing choice.
- Enabling interoperability between dominant and challenger networks may raise overall digital payments adoption, particularly in fragmented markets.
- Policy attention should consider regional fragmentation when assessing the potential gains from promoting interoperability in payments markets.
Publication metadata (selected)
- Authors: Alexander Copestake, Divya Kirti, Maria Soledad Martinez Peria, Yao Zeng
- Publication date: June 27, 2025
- Series: IMF Working Papers; Working Paper No. 2025/126
- Pages: 105
- DOI: https://doi.org/10.5089/9798229013857.001
Source: Integrating Fragmented Networks: The Value of Interoperability in Money and Payments, Alexander Copestake, Divya Kirti, Maria Soledad Martinez Peria, and Yao Zeng, IMF Working Papers, June 27, 2025.
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