IMF study suggests interoperability boosts digital payments use

The International Monetary Fund (IMF) has published a report on growing retail digital payments, which is a significant aim of many digital public infrastructure and financial inclusion programs worldwide.

Specifically, the study looks at the value of interoperability as policymakers globally are looking to boost retail digital-payment use.

This stems from the potential benefits downstream, such as stimulating commerce in the switch from cash to digital payments; reduced transaction costs and expanding access to credit.

The study argues that making different payment apps interoperable, so users can pick and switch freely, lowers barriers to adoption.

Drawing on transaction data from India’s Unified Payments Interface (UPI), which is the world’s largest fast payments system by volume, the authors examine how its interoperability has fueled usage.

“UPI has transformed the digital payments landscape in India,” the authors say in the study. “Evidence from the platform suggests that interoperability can improve users’ experience of digital payments and expand overall adoption.”

The IMF study, authored by Alexander Copestake, Divya Kirti and Maria Soledad Martinez Peria, looks at how interoperability supports faster adoption of digital payments and focuses on two key mechanisms.

Firstly, in an interoperable ecosystem, users are freed to pick their favorite app and can therefore choose the one whose brand they trust the most or whose systems process transactions most reliably, the authors write.

Secondly, interoperability incentivizes existing providers to invest in improving quality to retain their users and encourages innovation among new providers to launch apps.

“Overall, users benefit from higher quality and more varied app choices and are more likely to use the system,” the report says, citing evidence from data covering all UPI transactions.

Overall, the findings suggest that enabling apps and platforms to talk to each other is a powerful policy tool for shifting economies away from cash and towards digital payment.

The full IMF report “Growing Retail Digital Payments: The Value of Interoperability” can be downloaded here.

Article Topics

Aadhaar  |  digital identity  |  financial inclusion  |  India Stack  |  International Monetary Fund (IMF)  |  interoperability  |  Unified Payments Interface - UPI