Webinar Series

 

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Open Payment Infrastructure and Market Participation: The Role of Interoperability in Financial Inclusion

How do architectural choices in payment system design affect financial market participation and structure? The authors examine this question by exploiting India’s launch of the Unified Payments Interface (UPI), an open, interoperable payment infrastructure that enables seamless cross-platform transactions across banks and fintech applications. Unlike closed-loop systems that create institutional silos, UPI’s open architecture allows users to transact across any participating platform, fundamentally altering the competitive landscape and access dynamics in financial markets. Using comprehensive data covering 19.8 million retail investors (2015-2020), the authors find that regions with greater exposure to early UPI-adopting banks experience substantial increases in financial market participation: 6.1% more monthly transactions and 8.6% more active investors per standard deviation of UPI exposure. Through multiple identification strategies—including natural experiments with bank holidays and telecommunications expansion, and direct comparison with State Bank of India’s closed YONO platform—the authors demonstrate these effects stem specifically from UPI’s interoperability rather than general digitization. The authors identify four complementary mechanisms: reduced transaction frictions enabling faster market response, lowered entry barriers for small participants, network externalities from cross-platform integration, and transformation of savings behavior. However, open architecture’s democratization comes with systemic costs: small investors exhibit riskier behavior including lower diversification and negative long-term excess returns. Our findings reveal how payment infrastructure design choices create economy-wide implications for financial inclusion, market structure, and stability, providing crucial evidence for policymakers designing next-generation payment systems globally.

21
Aug
2025
Thursday

Session Chair: Zhiguo HE
James Irvin Miller Professor of Finance, Graduate School of Business, Stanford University and Senior Fellow, ABFER

10:00 am
Open Payment Infrastructure and Market Participation: The Role of Interoperability in Financial Inclusion

Meghana AYYAGARI, Professor of International Business, Finance and International Affairs School of Business, George Washington University

Co-authors:
Yuxi (Lance) CHENG, Assistant Professor in International Business, Management School, University of Liverpool
Pulak GHOSH, Professor in the Decision Sciences, Indian Institute of Management Bangalore and Fellow, ABFER
Nirupama KULKARNI, Financial Economist, Centre for Advanced Financial Research and Learning (CAFRAL), Reserve Bank of India
10:25 am
Discussion
Discussant:
Divya KIRTI, Senior Economist, Research Department, International Monetary Fund
10:50 am
Q&A
11:10 am

Updated 29 Jul 2025

Session Format

Each session lasts for 1 hour 10 minutes (25 minutes for the author, 25 minutes for the discussant and 20 minutes for participants' Q&A). Sessions will be recorded and posted on ABFER website, except in cases where speakers or discussants request us not to.

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