UPI led to exponential penetration of digital payments across India

Using India's 2016 launch of the Unified Payments Interface (UPI) as a natural experiment, a research paper brought out analyzes whether the public provision of digital payment infrastructure combined with Open Banking enhances access to credit.

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UPI is the earliest implementation of an open-banking based payment infrastructure that is free for customers and enables them to create verifiable digital financial footprints in real time. Importantly, customers own their data and can share their UPI transaction history across financial intermediaries.

In fact, the paper establishes five main findings. First, UPI significantly expanded consumer credit access both on the intensive (included borrowers) and extensive (excluded borrowers) margins, particularly for traditionally underserved borrowers. Importantly, credit increases for both the incumbent banks and the new entrants (fintechs). Financial inclusion improves particularly benefiting marginal borrowers such as subprime and new-to-credit borrowers (i.e., borrowers who did not have access to formal credit markets earlier).