Read the working paper.

The Challenge

In low- and middle-income countries (LMICs), bank account ownership has expanded rapidly, reaching 75 percent as of 2025, yet dependence on cash remains high. In India, this challenge was especially pronounced: Prior to 2016, cash accounted for 78 percent of merchant transactions despite comparatively high rates of bank account ownership. This imposed economic costs including requiring consumers to spend more time going to ATMs and incurring transaction fees, forcing financial institutions to manage logistics of maintaining cash at their branches, and preventing the government from receiving tax revenue. Digital financial services (DFS) are designed to give account holders a convenient alternative to cash, encouraging greater use of formal banking. However, many of these systems have evolved as closed networks, confining users to transacting only within their own provider and making it difficult to pay someone who banks elsewhere. For policymakers, it is a central concern to develop payment systems that can leverage existing account ownership to unlock welfare gains from increased financial inclusion.

Cross-platform, instant payment systems—known as interoperable payment systems—have emerged in many countries as a way to convert existing account access into actual use of formal financial services. For instance, India’s Unified Payments Interface (UPI) was launched nationwide in 2016. The system allows individuals who hold an account with a UPI-connected bank to make instant digital payments to consumers, merchants, and government agencies, without needing to hold an account with the same institution as the person or entity they are paying. However, while research has examined the impact of DFS within a single network and how markets have reacted to moving toward cashless economies, evidence is limited on whether a national cross-platform, interoperable payment system encourages broader use of formal financial services.

The Evaluation

Funded by IPA’s Financial Inclusion Program, researchers measured whether UPI increased the use of formal financial services among consumers in India. The study involved 48,027 adults aged 15 and older, of whom 37,095 held a bank account and were included in the main analysis.

To account for the fact that individuals choose whether to use UPI, researchers compared areas where banks partnered with major UPI payment apps to areas where they did not, using this difference to measure UPI's effect on financial service use.

The study examined three areas of formal financial service use: 

• Saving
• Digital payments for bills, wages, and government transactions
• More advanced services, such as insurance and investment.

Results

UPI had a significant positive impact on financial inclusion, nearly tripling the likelihood that consumers saved through a formal financial institution (from 19.4 percent to 54.4 percent, a 35 percentage point increase). At the same time, UPI use had no impact on informal savings. Moreover, UPI users were also 25 percentage points more likely to purchase formal insurance (from 2.7 percent) and 16.3 percentage points more likely to invest through digital channels (from 2.2 percent).

Beyond higher use of financial services, UPI made it more common for users to make and receive payments: digital bill payments increased by 60.2 percentage points, receiving digital wages rose by 42.4 percentage points (with no impact on cash wages), and digital payments to the government increased by 18.7 percentage points.

Taken together, the findings suggest that interoperable instant payment systems can help convert existing access to bank accounts into greater use of formal financial and digital services on a national level, strengthening financial inclusion.

Sources

1. Karina Broens Nielsen and Silvia Storchi, “Beyond Account Access: Converting Financial Inclusion into Resilience,” CGAP, September 11, 2025, https://www.cgap.org/blog/beyond-account-access-converting-financial-inclusion-resilience

2. Reserve Bank of India, “Macroeconomic Impact of Demonetisation- A Preliminary Assessment,” Reserve Bank of India, Mar 10, 2017, https://rbi.org.in/Scripts/PublicationsView.aspx?id=17447

3. Suri, Tavneet. "Mobile money." Annual Review of Economics 9 (2017): 497-520.

Awanis, Aramé, Christopher Lowe, Simon Andersson-Manjang, and Dominica Lindsey. "State of the industry report on mobile money." Amstersdam: The Bill and Media Gates Foundation (2022).

4. Costa, Hélia, Mauro Pisu, and Vatsala Shreeti. "Short term cost of cash and mobile financial services: evidence from a natural experiment in India." (2022).

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