Funding the Trade: Payment Interoperability and Retail Investors

Nirupama Kulkarni, Meghana Ayyagari and Pulak Ghosh

Working Papers from Centre for Advanced Financial Research and Learning (CAFRAL)

Abstract: Does payment infrastructure shape who trades and how well they invest? We study India's Unified Payments Interface, an interoperable payment rail, using transactions of 19.8 million retail investors. A one-standard-deviation increase in exposure to early-adopting banks raises monthly transactions 6.2% and active investors 8.7%. A proprietary single-bank payment platform produces much smaller effects. Responses concentrate in small trades and cash-intensive regions and intensify around market crashes. High-and low-exposure regions converge on bank holidays, when conventional rails close. Additional trading comes from experienced investors, while long-horizon return declines fall on inexperienced investors. Thus, open rails expand participation without improving performance.

Pages: 81
Date: 2026-09-04
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