Integrating Fragmented Networks: The Value of Interoperability in Money and Payments

Payments technologies present an economic dilemma: while network effects can lead to the dominance of a small number of platforms, efforts to expand choice risk fragmenting the market. This study investigates whether interoperability can help resolve this tension, drawing on data from India’s Unified Payments Interface, the world’s largest fast payment system by volume, and from a major pre-existing fintech firm. When the two networks became interoperable, overall digital payment usage increased. Consistent with the study’s proposed model of payment choice, this growth was concentrated in regions where digital payments had been more fragmented across platforms prior to integration. The model suggests that network unification increased total digital payment usage by more than 50 percent in the year following integration.