MIL-OSI Banking: Growing Retail Digital Payments: The Value of Interoperability

Summary

Policymakers in many countries aim to increase the uptake of retail digital payment systems. This Note examines whether interoperability can help achieve this goal. We provide a conceptual framework that explains how interoperability can support the adoption of digital payments by increasing users’ freedom to choose their favorite app. We present evidence consistent with this framework using granular data covering the universe of transactions on India’s Unified Payments Interface (UPI), an interoperable platform that has become the world’s largest retail fast payment system by volume. We find that interoperability has indeed supported adoption, suggesting that promoting interoperability could be a promising policy lever for countries seeking to transition away from cash.