India’s Frictionless Payments

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Interoperability is the ability of different payment apps, banks, and platforms to connect seamlessly; it converts closed-loop "walled gardens" into open, connected networks where users can transact across providers.
Interoperability delivers two major benefits: a better user experience (choice of apps based on ease of use, reliability, language options) and more innovation (providers must improve as switching is easy).
The article draws on research showing interoperability empowered consumers, fostered innovation, and accelerated the shift away from cash in India (Copestake and others 2025).

Launched in 2016, UPI allows payments to be sent and received easily across all participating apps and banks.
UPI is "the largest real-time payment system in the world by volume, processing more than 19 billion transactions every month."
Most UPI transactions take place across different apps—transactions that would not be possible in closed-loop systems.
Early adoption pathways included trusted bank apps and BHIM, a simple public app introduced by the UPI operator to onboard new users.
As UPI gained traction, "more than 200 apps and most banks entered the market."
Over time, competition and switching led to improved reliability across apps, measured by reduced transaction failure rates.

Two episodes with new granular data indicate interoperability played a central role:
- The 2016 banknote demonetization pushed many users to try digital payments; faced with closed-loop apps versus interoperable UPI, users largely chose UPI, which saw much more rapid growth driven by cross-app transactions.
- In 2017, after a regulatory push, a leading closed-loop provider joined UPI, merging two large preexisting payment networks. In districts with the most initial fragmentation—and therefore the largest gains from increased interoperability—digital payments grew faster.
The merger led to higher usage of both networks, increased transactions between them, and a rise in total digital payments relative to proxies for cash usage.
Users valued the combined connected network "more than the sum of its parts."

Complementary factors that aided India’s digital payments expansion:
- A broad digital ID system.
- Financial inclusion programs.
- Affordable mobile internet.
These digital enablers supported adoption alongside open payments infrastructure.

Build open infrastructure: Interoperability fosters user choice and innovation.
Invest in digital enablers: Affordable mobile data, national ID systems, and broad access to banking are essential.
Support early adoption: Governments can help build momentum through a public app (example: BHIM).
Monitor market dynamics and tailor regulation: Track usage patterns, app dominance, and switching costs to preserve user choice.
- Example concerns observed: providers nudging users to remain within their walled gardens via QR code branding, bundled services, and other means.
Continuous market monitoring is critical because "over 95 percent of UPI transactions are initiated using only three apps, and in about half of them, both payer and payee use the same app."

UPI launch year: 2016.
UPI processes "more than 19 billion transactions every month."
Market entrants: "more than 200 apps and most banks" entered the market as UPI gained traction.
Banknote demonetization: 2016 (policy episode pushing digital payments).
Leading closed-loop provider joined UPI: 2017 (resulting in network merger).
Market concentration: "over 95 percent of UPI transactions are initiated using only three apps."
Same-app transactions: "in about half of them, both payer and payee use the same app."

India’s Frictionless Payments — ALEX COPESTAKE; DIVYA KIRTI; MARÍA SOLEDAD MARTÍNEZ PERÍA. F&D Magazine. September 2025.

India's Frictionless Payments
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