ICLE Issue Brief

Digital Payments and Financial Inclusion

Executive Summary

Privately run digital-payments systems are helping to bring informal market transactions and unbanked people into the formal economies of many countries—in the process, improving livelihoods and fostering innovation and economic growth.

The success these private systems experienced in expanding financial inclusion has led some governments to create their own systems for digital payments. “India Stack,” for example, combines a national ID and associated database (Aadhaar), an interoperability framework for real-time payments (UPI), and a set of standards for sharing financial data (DEPA). Brazil, meanwhile, has focused on the middle part of that stack, with the nation’s central bank, BCB, creating its own real-time payment system (Pix).

The results of these interventions have been mixed. Where they have supported natural market developments (as is largely the case with Aadhaar), they have had a positive impact. But where they have competed directly with market actors, they have created distortions that may inhibit more effective market solutions. For example:

• Restrictions on interchange fees imposed by UPI have favored market participants who are able to monetize the operation of payment networks in other ways, such as Google (which monetizes primarily through search advertising) and Walmart (which monetizes through the sale of goods).
• Similarly, subsidies from the BCB and Pix’s restrictions on interchange fees crowd out private-sector competition and undermine innovations that might lead to increased financial inclusion.

In some cases, governmental attempts to force a shift toward digital money have impeded financial inclusion. India’s “demonetization” in 2016 harmed M-Pesa, contributing to greater financial exclusion. Arbitrary governmental regulations, including restrictions on the number of WhatsApp Pay users, have also likely inhibited both competition and financial inclusion.

The key lesson is that the private sector is well-placed to identify opportunities for digital payments and to implement solutions appropriate to local consumer culture and other contingent facts. Meanwhile, governments should focus on delivering genuine public goods, such as identity verification, and avoid the temptation to participate in digital-payments infrastructure.

I. Introduction

Digital-payment systems are expanding access to financial services around the world. In many countries, they are helping to bring the previously unbanked into the formal economy. In so doing, they undoubtedly improve livelihoods and foster innovation and economic growth. But not all digital-payment systems are alike.

Early digital-payment systems were largely private-sector initiatives. Notable among these are: M-Pesa in Kenya; Venmo in the United States; AliPay and WeChat Pay in China; and MobiKwik and Paytm in India. These emerged as bottom-up responses to the felt needs of consumers and merchants.

The success these private systems experienced in expanding financial inclusion has led some governments to create their own systems for digital payments. “India Stack,” for example, combines a national ID and associated database (Aadhaar), an interoperability framework for real-time payments (UPI), and a set of standards for sharing financial data (DEPA). Brazil, meanwhile, has focused on the middle part of that stack, with the nation’s central bank, BCB, creating its own real-time payment system (Pix).

To better understand the costs and benefits of government interventions, this brief investigates the economics of mobile digital payments, their effects on financial inclusion, and the consequences of specific government interventions. Section II begins with a discussion of the core problems that payment systems must address, providing a law & economics framing. Section III describes the development of digital-payment platforms in Kenya, China, India, and Brazil. Section IV puts the evidence presented in section III into broader context and draws conclusions for policymakers.

II. The Economics of Mobile Digital Payments and Financial Inclusion

This section briefly considers the economics of payments, focusing on the two core problems that all payments systems must address: counterparty risk and the two-sided nature of the payments markets.

A. Trust and Counterparty Risk

In all transactions, there is a risk that a counterparty will not perform the promised action. For example, in the sale of any good, the seller may fail to deliver that good; the good may not function as described; or the buyer may fail to make payment. This is particularly problematic in the context of transactions among parties who are unknown to one another, or who are separated by time and space, as is the case in many online transactions.

One way to address counterparty risk is through the law of contract. In common-law jurisdictions, buyers may bring breach-of-contract actions against sellers if the goods purchased are damaged, defective, or otherwise not fit for purpose (or some equivalent term). Meanwhile, sellers may bring breach-of-contract actions against buyers who fail to make payment as agreed in a timely manner.

Often, however, the cost of legal action is large relative to the value of a transaction. As such, while contract law may function as a backstop, it is usually more efficient to resolve such disputes through alternative means. In the online marketplace, entrepreneurs have developed several important technologies that serve to facilitate trust and otherwise address counterparty risk; these include user ratings, security protocols and fraud-detection systems, payment gateways, and online escrow systems. The digital-payment systems discussed in Section III typically rely on some or all of these technologies. (The Appendix includes a more detailed discussion of the various ways counterparty risk has been addressed in the context of online transactions.)

B. Two-Sided Markets

Payment systems are an example of what economists call “two-sided markets”: buyers are on one side, sellers on the other, and the payment system itself acts as the platform that facilitates interactions between them.[1] The primary challenge faced by any two-sided market is to ensure that there are sufficient participants on both sides for it to be self-sustaining. Conceptually, this is known as a cross-side network effect.

In the case of payment systems, if too few sellers accept a particular form of payment, buyers will have little reason to adopt it. Likewise, if too few buyers hold a particular form of payment, sellers will have little reason to accept it. This applies equally to other two-sided markets, such as shopping malls. For customers to want to go to a mall, there must be stores that they want to visit. And for stores to want to locate in a mall, they need to know that there will be customers who will visit.

Two-sided markets also must cover the operational costs. In the case of shopping malls, this means the costs of building and operating the mall, including ongoing maintenance, lighting and heating/cooling of common areas, and various services, usually including security. In the case of payment networks, it includes the development and maintenance of technology needed to facilitate secure transactions, verify identity, and deter fraud.

Platforms typically address these problems simultaneously by charging differential fees and offering incentives. Thus, malls typically charge store owners (one side of the market) rent and service fees sufficient to cover both capital and operational costs. Those store owners thus effectively subsidize access to the mall for customers (the other side of the market), who are generally free to walk around enjoying the mall’s climate and security even if they do not ultimately make any purchases. This highlights a feature common to most two-sided markets: it is usually efficient for one side to subsidize the other, thereby maximizing the value to all participants. Typically, the side that provides the subsidy has a lower price elasticity of demand (i.e., it is less sensitive to changes in the cost of platform services).[2]

Meanwhile, to encourage popular retailers to locate in the mall in the first place, mall owners may offer discounted rent to early occupants and/or specific retailers who are especially likely to attract customers (such as hotels and restaurants with a loyal following).[3] This highlights another feature of two-sided markets: it may also be efficient for some participants on one side to subsidize other participants on the same side, again in order to maximize the value to all participants.

Like malls, payment networks typically facilitate cross-network subsidies. Merchants typically place a higher value on the ability to accept a specific payment type than consumers place on the ability to use that payment type. In other words, merchants have lower price elasticity of demand for the payment network. Because of this, the subsidy typically flows from the merchant to the consumer.

In some cases, payment networks also exhibit own-side subsidies. For example, smaller-ticket items may be subject to proportionally lower fees—a merchant-side subsidy. Meanwhile, some consumers may receive an initial rewards bonus and/or pay a lower fee for the first year they use a certain payment type (such as a credit card)—a consumer-side subsidy.

III. Mobile Digital-Payment Platforms

While Venmo and Zelle may be better known in the United States, the first cellphone-based payment networks first emerged informally in Tanzania and some other sub-Saharan African countries in the early 2000s, allowing users to send cellphone airtime minutes from one phone to another.[4] These informal networks inspired the development of more formal systems, such as M-Pesa. In China, meanwhile, mobile payments emerged from two different sources: an online payment system (Alipay) and a cellphone-messaging service (WeChat). India’s early leader in mobile payments, Paytm, grew out of a cellphone-charging platform.

A. M-Pesa and the Mobile-Payments Revolution in Africa

In 2006, Kenya had 41 retail banks with 400 branches and 600 automated-teller machines (ATMs) for a population of 36 million.[5] By comparison, the United States at the time had 7,523 banks with 72,958 branches and 400,000 ATMs for a population of 296 million. On a per-capita bases, that’s nearly 20 times the number of banks and branches, and 80 times as many ATMs.[6]

Unsurprisingly, Kenyans—especially those in rural areas—were not major users of the banking system. A survey undertaken in 2006 found that just 18.9% of Kenyan adults had access to a bank account or other formal financial-services provider, such as insurance, while a further 7.5% had accounts with semi-formal savings and credit organizations and/or a microfinance institution. Thus, no more than about a quarter of the adult population had access to a formal or even semiformal financial-services provider.[7] Of the remainder, slightly less than half of the population (35.2% of those surveyed) had access to informal financial services, while the rest (38.4%) were considered “financially excluded.” The proportion of adults with access to electronic payments was even smaller, with less than 10% having a credit card.[8]

Three years before that survey was undertaken, Nick Hughes, then head of social enterprises at Vodafone, learned of the use of air-time credits as an informal currency in Tanzania, and believed it should be possible to create a more formal system to facilitate microcredit and microinsurance—services that were popular among development groups at the time. [9] Hughes put together a proposal to do just that and submitted it to the UK government’s Department for International Development (DFID). The DFID awarded Vodafone £1 million for a pilot program, which Vodafone matched with a combination of cash and personnel time.

For the pilot project, which launched in October 2005, Hughes selected Commercial Bank of Africa (CBA), which would hold customer funds in a trust account; Faulu Kenya, a microfinance institution that would provide loans; and Vodafone’s 40% owned subsidiary Safaricom.[10]

Hughes called the system M-Pesa: “pesa” is Swahili for money and M stands for mobile, so M-Pesa is “mobile money.” The pilot project proved to be a wild hit, though not primarily for microfinance loans. It was mainly used to send money from one person to another, including people who were not part of the pilot. For example, it was used for business transactions, for remittances, and to store money overnight.[11]

In 2007, Safaricom formally launched M-Pesa at-scale. That meant onboarding thousands of agents, who receive funds deposits from accountholders, and whose identity they verify using a national ID card or passport. The agents add those funds to the system, as well as pay-out funds that are withdrawn. By 2012, there were more than 30,000 M-Pesa agents. As of October 2023, there were 160,000 M-Pesa agents in Kenya alone, and 500,000 across all the markets in which M-Pesa operates.[12]

M-Pesa began as a text-based system with limited functionality. As smartphones became more prevalent, it expanded to include a wider range of financial services. In 2011, Safaricom partnered with CBA to enable users to create a linked bank account, called M-Shwari, that enables M-Pesa users to save and borrow.[13] By 2015, more than 10 million Kenyans had opened M-Shwari bank accounts; for many, this represented their first such formal bank account.[14] CBA also launched similar products in Tanzania, Uganda, Rwanda, and Cote d’Ivoire.[15]

Using a mobile app or web interface, it is also now possible to pay money into M-Pesa electronically by linking to a bank account.[16] Since 2022, M-Pesa has had a partnership with Visa, which enables M-Pesa accountholders to establish a virtual account that can then be used to make international purchases online.[17]

According to the most recent FinAccess report, M-Pesa helped to expand financial inclusion in Kenya from 26% of the population in 2006 to 84% in 2021.[18] It has also facilitated economic growth and, according to a study published in Science by MIT economists Tavneet Suri and William Jack, has helped to lift hundreds of thousands out of poverty.[19]

M-Pesa has been so successful that it has expanded to the Democratic Republic of Congo (DRC), Egypt, Ghana, Lesotho, Mozambique, and Tanzania. It now boasts more than 51 million users and $314 billion in annual transactions.[20] Other mobile operators have also followed suit, both in Kenya and across Africa, with Orange providing its “Orange Money” service to more than 80 million customers in 17 countries in Africa and the Middle East.[21]

B. China

The success of mobile-payments systems in Africa has been much vaunted. But by some metrics (e.g., rate of adoption, value of transactions, and broad economic effects), it pales in comparison with the success of the two primary mobile-payments systems that have developed in China: Alipay and WeChat Pay.

1.  AliPay

In 2003, there were only 3 million credit cards issued in China, implying that less than 5% of adults had a card.[22] Meanwhile, China had around 20 million internet-connected computers and 60 million internet accounts.[23] The vast majority of Chinese internet users thus lacked a reliable means to make online purchases. This posed significant problems for online auctions and other consumer-to-consumer marketplaces, where there is an inherent trust deficit between buyer and seller—and associated counterparty risk.[24]

To address this problem, in 2003, online retailer Alibaba introduced an escrow service, called Alipay, for its consumer-to-consumer subsidiary Taobao.[25] When making a payment, funds are initially deposited in Alipay’s escrow account and only released to the seller once both parties are satisfied that the transaction is complete.[26] Initially, users would fund their Alipay personal digital wallet by linking it to their bank account.[27] Over time, Alipay has expanded the ways in which wallets can be funded to include debit cards, credit cards, bank transfers, and other digital wallets.[28]

Alipay’s mobile wallet, launched in 2008, had grown to roughly 100 million users by 2013. Today, it has more than 900 million users in China and about 1.3 billion users around the world.[29]

2. WeChat Pay

WeChat Pay (officially “Weixin Pay”) is a mobile wallet and payments system launched in 2014 with the express intention of enabling users of the WeChat messaging app to send money to one another.[30] To drive adoption, WeChat introduced the ability to share virtual “red envelopes” with family and friends over the Lunar New Year holiday—replicating an ancient tradition.[31] This proved enormously popular, with 20 million red envelopes sent in the first year, and 3.2 billion sent in the following year. Over time, WeChat’s owner Tencent has built an ecosystem around WeChat Pay, including mini-programs that enable the user to hail rides or pay for movie tickets.[32] As of 2022, about 60% of WeChat users use these mini-programs.[33]

Unlike AliPay, WeChat Pay does not provide escrow services, and is thus less well-suited to certain kinds of online transactions. It works well, however, both for in-person payments to merchants and transfers to other individuals (including gift giving). WeChat Pay has approximately 1.1 billion users worldwide.[34]

3. Discussion

AliPay and WeChat Pay’s precursor (TenPay) both began life as mechanisms to enable payments within existing ecosystems of products and services. AliPay’s pivot to mobile payments proved an enormous success, motivating Tencent to create its own mobile-payments system. Over time, both systems have gradually expanded to provide payment services outside their own ecosystems. Payments using either platform can be made at an increasingly large number of merchants using a range of technologies, including quick-response (QR) codes for in-store or peer-to-peer (P2P) payments.[35]

For nearly a decade, AliPay and WeChat Pay have been engaged in fierce competition. As access to credit cards in China has grown, this competition has expanded to include China Union Pay. As of 2022, AliPay and WeChat Pay were by far the most used means of making online payments (see Figure 1).

FIGURE 1: Most Used Online-Payment Services in China (2022)

SOURCE: Daxue Consulting[36]

In 2015, Tencent and Alibaba established banks associated with their payment networks. WeBank (Tencent) and MyBank (Alibaba, now part of Ant Financial) have since grown rapidly. Ant Financial reports that, as of June 2022, MyBank had provided loans to more than 49 million small and medium-sized enterprise (SMEs), of which 80% had not previously had a bank loan.[37] WeBank, meanwhile, reports having more than 370 million individual clients and more than 4 million micro-small-and-medium-sized-enterprise (MSME) clients.[38]

In July 2023, the Chinese authorities permitted AliPay and WeChat Pay to integrate payments made using Mastercard, Visa, American Express, and Discover.[39] This, combined with increasing adoption of China Union Pay cards domestically, has led to an increase in the use of AliPay and WeChat Pay as mobile-payment gateways, in contrast to their role as digital wallets.

The emergence and expansion of digital payments in China has undoubtedly resulted in improvements in access to financial services, both directly (since payments are a financial service) and indirectly, by enabling tens of millions of businesses and hundreds of millions of individuals to hold bank accounts and thereby access related services, including loans.

C. India

India’s mobile-payment system has grown rapidly over the past decade. The market’s key players are MobiKwik, Paytm, PhonePe, and Google Pay. This section discusses those services, as well as WhatsApp Pay and M-Pesa, which have been less successful in India.

A major factor affecting the development of mobile payments in India has been the national digital ID (Aadhaar) and the Unified Payment Interface (UPI), both part of what is now referred to as “India Stack.”[40] I plan to look at India Stack in more detail in a future piece, but it is worth noting the following:

1. Aadhaar was developed by the Unique Identification Authority of India (UIDAI), a government authority established in 2009, in order to enable every resident of India to have a unique digital identity that could be instantaneously verified. The goal was to thereby reduce identity theft and related fraud, and facilitate more rapid onboarding to banks and other financial entities that require proof of identity for know-your-customer (KYC) purposes.[41] UIDAI began enrolling Indian residents in Aadhaar in 2010 and, by the end of 2015, had enrolled more than 800 million people.[42] As of February 2023, 1.38 billion Indian residents are enrolled—about 96% of the population.[43]
2. UPI was developed in 2016 by the National Payments Corporation of India (NPCI), a public-private partnership, as an open-source interoperable application programming interface (API) that facilitates real-time transfers between individuals with accounts at participating banks who have integrated the API into their smartphone apps.[44]

1. MobiKwik

Among the first mobile-payments systems in India, MobiKwik was initially established in 2009 by husband-and-wife team Bipin Preet Singh and Upasana Taku.[45] In 2012, it launched a digital wallet feature and, in 2013, the Reserve Bank of India awarded it a license for that wallet.[46] MobiKwik grew organically, aided by significant investments from Bajaj Capital and Sequoia, and signed up 1.5 million merchants and 55 million registered users by 2015.[47] It has continued to grow in the nearly decade since, albeit at a slower rate, recording around 4 million merchants, 140 million registered users, and 35 million active monthly users in 2023.[48]

MobiKwik generates revenue from commissions and advertisements from its Zaak payment-gateway franchise subsidiary,[49] as well as loans—including short-term credit, buy-now-pay-later, and personal loans—and investment advice.[50]

2. Paytm

Paytm began life in 2010 as a prepaid mobile-charging platform, but pivoted to payments in 2014 with the introduction of a mobile wallet. Paytm now generates revenue from three main sources: payment services, financial services, and “commerce and cloud.” Payment services—the core of its business, contributing 58% of its revenue in Q3 2023[51]—arise from users making payments from mobile wallets, debit cards, and credit cards, for which Paytm charges merchants a fee (merchant-discount rate) that ranges from 0.4% to 2.99% of the transaction amount, depending on the payment type (for small to medium-size businesses).[52] Financial services—including loans, investments, and insurance—accounted for 22% of Paytm’s revenue in the most recent quarter, while “commerce and cloud” services—Paytm’s marketplace that features more than 100,000 merchants—accounted for 20% of revenue.

This combination of offerings has allowed Paytm to become a highly effective multisided market. A year after launching its mobile wallet, Paytm had 100 million registered accounts, making it the early leader in the field in India.[53] The user base grew by 50% in 2016,[54] likely in part as a result of the government’s decision to cancel the majority of its banknotes.[55] It now has approximately 100 million active users.[56] While Paytm’s wallet remains the most popular digital wallet in India, its share of the mobile-payments market has declined as a result of competition from PhonePe and Google Pay.

In addition to offering payments, Paytm provides a range of financial services, including personal and business loans. It also operates its own ecommerce platform.

3. PhonePe

Created in 2015 by former Flipkart executives Sameer Nagim and Rahul Chari, PhonePe is India’s market-leading mobile-payments platform and was acquired by Flipkart in 2016 prior to its launch.[57] Flipkart itself—founded in Bengaluru in 2007—was purchased by Walmart in 2018.[58] In December 2022, PhonePe was separated from Flipkart, though both remain majority owned by Walmart.[59]

By launching as a wholly owned subsidiary of Flipkart, India’s largest online marketplace, PhonePe was able to leverage the marketplace’s then 100 million users (it has since grown to 400 million),[60] enabling it rapidly to acquire customers. PhonePe also differentiated itself from Paytm by primarily targeting middle-class consumers and associated merchants in second-tier cities.[61] PhonePe was also an early adopter of the Unified Payments Interface (UPI), a real-time payments solution that facilitates account-to-account transfers at no cost to either party.

Since separating from Flipkart, PhonePe’s offerings are now remarkably similar to those of Paytm. It does, however, have a larger user base (approximately 200 million monthly active users, double Paytm’s 100 million) its historic connection to Flipkart enables it more effectively profit from low-margin, high-volume activities.

4. Google Pay

Google Pay, which launched in India in 2017 (originally under the brand Tez), is now the second most popular mobile-payments system in India.[62] Google Pay does not act as a wallet in India, but is essentially a payment gateway that works exclusively with UPI.[63]  Google Pay has built a large Indian customer base due largely to brand recognition. Google is able to monetize Google Pay through advertising and its local online marketplace.[64] Google has also been granted a license to operate as a payment aggregator.[65]

5. WhatsApp Pay

Meta launched a pilot program for WhatsApp Pay in India in 2017, but did not fully launch until 2020 and has been subject to limits on its number of users.[66] Despite operating the most popular messaging service in the country, with more than 400 million users, WhatsApp Pay has not taken off. Indeed, its peak market share was about 0.4%, and it has since fallen to about 0.1%.[67]

WhatsApp Pay’s failure in India is likely due in no small part to regulatory delays in launching and the NPCI-imposed limits on the number of users—initially 40 million, but increased to 100 million in 2022.[68] The delay in launching meant that PhonePe and Google Pay were able to gain the upper hand on WhatsApp, becoming the predominant UPI-based wallet and payment gateways, respectively. The limit on signups, meanwhile, has forced WhatsApp to impose arbitrary restrictions on which customers can adopt its payment service, which effectively undermines the self-organization that underpins P2P-transaction networks.

6. M-Pesa

M-Pesa entered the Indian market in 2011, hoping to repeat its success in Kenya. Despite attracting more than 400 million Indian subscribers, many of them in rural areas, Vodafone was only able to onboard 8.4 million subscribers and eventually shut down the operation in 2019.[69] In an interview in 2020, the former head of M-Pesa, Michael Joseph, identified four factors that explained the failure:[70]

• Difficulty recruiting agents: In Kenya, Safaricom had invested heavily in building a large network of M-Pesa agents across the country, including in remote villages. This allowed easy cash deposits and withdrawals. But in India, Vodafone struggled to find shops and merchants to serve as last-mile M-Pesa agents in rural areas.
• Lack of understanding among consumers: In contrast to Kenya, poor and unbanked Indian consumers needed more handholding and awareness-building to adopt M-Pesa, which required significant time, money, and labor from Vodafone.
• Competition from well-funded startups targeting more profitable market segments: Meanwhile, mobile-payment startups such as Paytm targeted urban middle-class and affluent consumers. They could link to bank accounts, unlike M-Pesa, which dealt in cash for the unbanked. Paytm also had significant investor backing.
• Demonetization: The 2016 Indian demonetization benefited digital payments that were linked to bank accounts, but it harmed M-Pesa, which focused primarily on the unbanked.

7. Discussion

The veritable explosion in mobile payments in India over the past decade has undoubtedly contributed to improvements in financial inclusion. India’s primary mobile-payments apps—MobiKwik, Paytm, PhonePe, and Google Pay—have sought to leverage their platforms to maximize value for both sides of the market (merchants and consumers) in different ways:

• MobiKwik (Zaakpay), Paytm, PhonePe, and Google Pay provide payment-gateway and/or aggregator services.[71]
• MobiKwik, Paytm, and PhonePe offer users wallet features and seek to supply additional financial services, such as insurance and investment.
• Paytm, PhonePe, and Google Pay generate revenue through online marketplaces.
• All the apps (but especially Google Pay) generate revenue from advertising.

As noted in the introduction to this section and throughout, UPI likely contributed to the rapid adoption of mobile payments, especially for PhonePe and Google Pay, which were built around it. The fact that UPI requires parties to have a bank account has likely created incentives to open such account, thereby increasing financial inclusion. The provision of welfare support through e-RUPI vouchers that are delivered over UPI also likely increases financial inclusion.[72]

Some aspects of UPI, however, may also have hindered more widespread adoption of mobile digital payments and inhibited financial inclusion. For example, NPCI currently prohibits card and app operators from charging merchants for most transactions made using UPI (fees of up to 1% are permitted only for prepaid debit cards and pre-funded mobile wallets). Those card issuers and app operators who lack existing means to monetize their relationships with customers are therefore likely to find it difficult to break into the market using UPI, as they cannot easily offer rewards and other inducements to customers to on-board and use their card or app.

The Payments Council of India estimates that its members lose 55 billion rupees ($660 million) annually as a result of the zero MDR on UPI and RuPay transactions.[73] This is effectively a transfer from banks to the companies whose apps monetize UPI transactions. India’s government partly offsets this loss through a subsidy to UPI participants of between 15 and 25 billion rupees.[74] But experience with other systems that impose restrictions on payment-transaction fees suggests that banks will seek to recover these losses from other fees.[75] To the extent that such additional fees fall on lower-income accountholders, the effect on financial inclusion is likely negative. (I plan to explore this and related issues in more detail in a future brief on India Stack.)

D. Brazil

The first mobile-payments system in Brazil appears to have been Oi Paggo, a closed-loop short-messaging-service (SMS) “credit card” system founded in 2004 and formally launched in 2006 as an app on the Oi mobile-phone service (it was subsequently purchased by Oi).[76] In 2008, Oi Paggo reportedly had around 1 million users, but does not appear to have achieved mass adoption.[77]

Over the course of the past dozen years, several other entrants have built successful digital mobile-payments systems. According to a recent Survey by Statista, the top five most-used mobile-payments systems in Brazil at the end of 2023, based on proportion of respondents who had used the payment online or in stores in the previous year, were: PicPay (50%), PayPal (46%), Mercado Pago (44%), PagBank (31%), and Google Pay (25%).[78]

Before discussing these mobile-payment solutions, it is worth briefly noting that, in 2021, the Central Bank of Brazil (BCB) introduced its own real-time payment system, Pix, and required all of Brazil’s larger banks to implement it for all accountholders. As a result, Pix has had a significant effect on mobile digital payments in Brazil.

1. PicPay

PicPay was founded in 2012 as a digital wallet and initially launched in the city of Vitória, where it has gained significant traction, with approximately 75% of the population using it.[79] It subsequently launched in Rio de Janeiro and São Paulo. In 2022, PicPay—owned by closely held J&F Investments—obtained a banking license via J&F’s bank, Banco Original, enabling it to expand its offerings and lower its funding cost.[80] PicPay has more than 30 million active users and is accepted at more than 10 million merchants.[81] It generates revenue from a range of product lines, including loans, credit cards, investments, insurance, and a crypto-currency exchange.[82]

2. PayPal

Originally conceived as a payment system in its own right, PayPal functions both as a payment gateway—processing card payments—and as a wallet. In Brazil, PayPal also has a Pix integration, which allows users to send and receive payments to their PayPal account using their Pix keys.[83]

3. Mercado Pago

A subsidiary of the online marketplace Mercado Libre, Mercado Pago is able to leverage the customer base of that market, offering a full range of payments and banking services, including checking accounts, deposit accounts, loans, debit cards, and credit cards.[84] Mercado Pago operates in several countries and reported having nearly 65 million accountholders in 2023.[85]

4. PagBank and PagSeguro

PagSeguro was founded in 2006 as an online payment system by Universo Online (UOL), Brazil’s largest internet-content and services provider.[86] In 2013, PagSeguro diversified into point-of-sale (POS) payments and then into banking, offering a range of services. PagBank now has around 15 million active Brazilian users and 7.7 million merchants.[87]

5. Google Pay

In Brazil, Google Pay operates primarily as a payment gateway, facilitating transactions made using debit and credit cards whose (tokenized) information is stored on a user’s phone and transmitted to POS machines using radio-frequency identification (RFID).[88]

6. Discussion

The above-mentioned survey suggests that there is considerable multi-homing for mobile digital payments in Brazil, with the same consumers using several different mobile-payments apps. It also seems plausible that these apps have contributed to financial inclusion. As Figure 2 shows, in the five years from 2017 to 2022, there was a dramatic shift away from the use of cash toward a combination of card and digital mobile payments.

FIGURE 2: POS Payments in Brazil by Method

SOURCE: Statista

Meanwhile, the proportion of Brazilians with accounts at a financial institution rose from 70% in 2017 to 84% in 2021. Some have suggested that this was the result of Pix’s introduction, but that appears unlikely, as Pix was only introduced at the end of 2020. Two other factors seem better candidates: first, the growing use of digital payments and associated onboarding by financial-technology firms (fintechs), such as PagBank; second, some government subsidies offered in response to the COVID-19 pandemic required Brazilians to open bank accounts.

A study by Americas Market Intelligence (commissioned by Mastercard) found that, during the COVID-19 pandemic: “Brazil reduced its unbanked population by an astounding 73%.”[89] The study was based on research conducted between June and August 2020 and was published in October 2020, the month before Pix launched. It described the implementation of state and federal programs that Brazil launched in response to the pandemic:

• The “Coronavoucher” program distributed emergency funds to low-income informal workers exclusively via the state-owned bank Caixa Econômica Federal (CEF). Applications for funds could only be made via CEF’s Caixa Tem smartphone app, and funds were distributed using the same app. As of Aug. 5, 2020, 66 million people had received Coronavouchers via the Caixa Tem app. Of those, 36 million were previously unbanked.
• Merenda em Casa (“snack at home”), a program run by state governments, distributed funds to low-income families with children at public schools to help pay for food while schools were closed due to COVID-19. The program distributed funds via PicPay and PagBank’s PagSeguro, both private-sector payment apps.[90]

Following the launch of Pix, the BCB-run RTP program was made available to clients of Caixa Tem, PicPay, and PagBank.[91] As a result, previously unbanked individuals who had become banked because of the Coronavoucher and Merenda em Casa programs were able to obtain and use Pix keys to send and receive payments.

IV. Conclusions and Policy Implications

At one level, every successful payment system solves the same set of problems—in essence: creating a self-sustaining network that facilitates the transfer of funds, while limiting counterparty risk. But as this study shows, each system does so in ways that are economically, legally, and culturally contingent.

In Kenya—and, subsequently, many other countries—M-Pesa provided a means for millions of people without ready access to banks to send and receive money over long distances. To do so, it created a network of tens of thousands of agents providing on- and off-ramps for cash. Over time, this has gradually transformed into a broader ecosystem that includes banking and other financial services.

In China, AliPay provided a solution to counterparty risk for internet-based transactions in an economy where alternative solutions, such as credit cards, were not widely available. AliPay was able to leverage its reputation for reliable and secure payments to facilitate transactions using increasingly widely available smartphones. Meanwhile, WeChat Pay was able to leverage its network of hundreds of millions of chat users to establish an effective mobile-payments ecosystem and associated markets for goods and services.

In India, MobiKwik and Paytm both offered digital wallets as an alternative to card payments for middle-class consumers in an economy where credit cards were tightly regulated. But over time, and especially with the introduction of UPI, all of the mobile-payment systems’ business models have converged around offering a range of financial products and markets.

In Brazil, an early attempt to introduce a mobile digital platform predicated on the credit-card model seems to have foundered, but later entrants—notably PicPay, PayPal, Mercado Pago, PagSeguro and other players—have been able to build and monetize payment networks by offering payment-gateway services and a range of adjacent products.

Public policy has played a substantial role in the development of all these mobile-payments ecosystems. In some cases, the effects have likely been positive. For example, India’s Aadhaar digital ID has dramatically reduced the cost of proving the identity of hundreds of millions of people, thereby facilitating quicker and less expensive access to bank accounts. The distribution of welfare payments via payment apps in India and Brazil also likely increased adoption at the margin.

On the other hand, restrictions on transaction fees in India (zero MDR on UPI and RuPay) and Brazil (extremely low interchange fees permitted on Pix) have almost certainly made it more difficult to reach some potential users. In the absence of adequate merchant-transaction fees, the only way to monetize mobile-payments systems is through advertising or by selling other products. Operators of mobile-payments systems might encourage some participants to use their platform by offering discounts on certain products and services. For example, in India, Google offered cashback incentives for use on apps within its own (Android) ecosystem.[92] While there is nothing wrong with this, it is less likely to attract marginal users who are not significant consumers of Android’s app-based services than would simply offering unencumbered cashback rewards.

It is also worth noting that limiting MDR fees on UPI and interchange fees on Pix does not necessarily grant merchants a free ride. They will often have to pay hefty per-transaction fees to participate in online markets, with those fees paid to the parent company (e.g., Google) rather than the payment-service provider (in this example, Google Pay). Moreover, since mobile-payments-system operators have incentives to keep customers within their ecosystem through internal rewards programs, brick-and-mortar merchants may find that they lose customers.

At base, these policy failures stem from the fact that payments markets do not cease being two-sided simply because governments choose to intervene in them. The operators of digital mobile-payments systems are highly aware of this fact. Consider this note from PayPal:

PayPal began with a vision of an online world where consumers could safely, securely, and easily use digital payments to buy what they need and want from businesses. Over the past 24 years, our two-sided network has grown significantly, seamlessly connecting shoppers and retailers across the globe.

Our platform now connects businesses, who look to us to help them navigate the digital economy, with shoppers, individuals who increasingly value flexibility and ease in where and how they shop and manage their daily financial lives. [93]

Meanwhile, PicPay notes:

We now have a more comprehensive portfolio of products and services, further enhancing our value proposition beyond the digital wallet and day to day payments services, becoming a much broader two-sided financial ecosystem.[94]

Interventions in two-sided markets change the participants’ incentives. For example, when MDR or IF rates are subject to price controls, system participants look for other ways to monetize their products (or exit). Fintech companies that operate mobile digital payments have found ways to monetize consumers through advertising and/or online marketplaces. But for banks that don’t also operate mobile digital-payments systems, participating in payment apps for which they cannot charge fees on most transactions, such as UPI and Pix, is often both unavoidable and unfortunate. It is unavoidable because accountholders now expect to be able to use these apps for payments. It is unfortunate because it adds cost, while bringing in minimal IF revenue at best. Banks therefore look for other ways to monetize those accounts, which can include increasing account-maintenance fees or hiking borrower interest rates and/or other fees. Such actions typically harm the poorest consumers, who are least able to afford additional account fees.

Following enactment in the United States of the so-called “Durbin amendment,” which imposed price controls on debit-card IFs, covered banks raised account fees and increased the minimum balance required to maintain an account. In response, it appears that many lower-income consumers closed their bank accounts.[95] In other words, in this and likely other cases, price controls on payment-network fees appear to have had negative effects on financial inclusion.

Furthermore, it is unclear whether the systems established by Brazil and India are sustainable in their current form. One problem is that both rely on government subsidies. In the case of UPI, these come from the central government and must be financed by taxpayers. In the case of Pix, they come from the central bank (BCB), and are thus presumably paid, in part, out of fees from the banks and other organizations that are licensed by BCB. Because such subsidies are not directly related to the system’s performance, the system operator’s incentives are not necessarily aligned with users’ incentives (banks, fintechs, consumers). This may result in underinvestment in security (as arguably has been the case with Pix) and in other necessary ongoing upgrades.

Finally, potential conflicts of interest arise when a payment system’s operator is also the regulator of other payment systems, especially when there are no apparent mechanisms to address this conflict. For example, BCB both operates Pix and regulates payment-service providers, but does not appear to even acknowledge that this may be a conflict.[96] Such concerns were evident Brazil when WhatsApp proposed to introduce a payment app in the country, but the BCB prevented it from doing so until after it had launched Pix.[97]

Looking at changes in the proportion of adults with an account at a financial institution from 2011 to 2021 (Figure 3), the clear winners out of the four countries studied here are China and Kenya. While India and Brazil have also seen significant improvements, the growth has been less dramatic. In part, this is likely because both Brazil and India started from a higher base, but policy also likely played a role. It is probably too soon to see an effect from Pix in the data (Brazil only launch that system at the end of 2020) but UPI and demonetization appear to have had a detrimental effect on financial inclusion in India, with the proportion of adults having an account at a financial institution falling slightly after 2016

FIGURE 3: Share of Adults with an Account at a Financial Institution (2011 to 2021)

SOURCE: World Bank

Governments should not distort the market in these ways. Quite the opposite: they should be as neutral as possible. And they should limit themselves to the production of genuine public goods, such as courts and identity registers. Doing so will enable participation, competition, and innovation, which will drive financial inclusion.

Appendix: Trust and Counterparty Risk in Online-Payment Systems

As noted in Section I, entrepreneurs have developed several important technologies to improve trust and otherwise address counterparty risk in the online world, including user ratings, security protocols and fraud-detection systems, payment gateways, and online escrow systems. The following subsections discuss these technologies.

A. User Ratings as a Means to Enhance Trust

In February 1996, eBay founder Pierre Omidyar introduced the “feedback forum” on the site in order to encourage buyers and sellers to provide constructive feedback to one another. Accompanying the forum’s launch, he included the following note:

Most people are honest. And they mean well. Some people go out of their way to make things right. I’ve heard great stories about the honesty of people here. But some people are dishonest. Or deceptive. This is true here, in the newsgroups, in the classifieds, and right next door. It’s a fact of life. But here, those people can’t hide. We’ll drive them away. Protect others from them. This grand hope depends on your active participation. Become a registered user. Use our feedback forum. Give praise where it is due; make complaints where appropriate. [98]

The forum became extremely popular and Omidyar credits it with much of eBay’s subsequent success, because it enabled users to generate trust with one another.[99]

Such ratings systems have now become a common feature of e-commerce sites; indeed, they are a more-or-less ubiquitous and expected feature of larger sites. Moreover, the granularity of such ratings arguably makes them superior to other forms of regulation.[100]

B. SSL and Credit-Card-Security Protocols

From the perspective of merchants, one of the advantages of accepting credit-card payments is the credible commitment made by card issuers (embedded in the agreement those issuers make with the networks) that they will pay the merchant (via the acquiring bank, in the case of bank-issued cards) as long as the merchant has undertaken the necessary authentication.

Early internet-based transactions, however, posed some novel problems for card networks. In particular, there were security concerns on both sides of the market: issuers and cardholders were concerned about the risk that card details would be stolen and used fraudulently, while merchants and acquirers were concerned that they would be presented with stolen card details that, if used, would result in liability through chargebacks. For online payments to work required the development of solutions that would enhance security and trust on both sides.

Part of the solution came with the development in 1994 of the “secure sockets layer” (SSL) by Marc Andreessen and his team at Mosaic/Netscape.[101] SSL allowed for encrypted information to be sent between a web browser and the host server, preventing that information from being stolen. It was the precursor to modern online browsers, which use transport layer security (TLS) to transmit encrypted information. The incorporation of a padlock sign in a browser’s uniform resource locator (URL) helped to reassure users that their connection was secure, and information could be transmitted without fear of theft.

Another part of the solution came with card networks’ introduction of additional security protocols. Initially, individual payment networks developed their own standards, but these were superseded in 2004 with the development and implementation of an initiative known as the Payment Card Industry Data Security Standard (PCI DSS), which since 2006 has been an independent entity that includes all the major card networks.[102]

C. Credit-Card Guarantees and Chargebacks

Another important mechanism by which credit cards increase trust is card issuers’ commitment (as part of their agreement with networks, in the case of four-party cards) to guarantee payment to merchants on the condition that the merchants themselves meet certain criteria, including undertaking authentication checks. Meanwhile, card issuers may initiate a chargeback against a merchant on behalf of a cardholder in cases of fraud or theft (e.g., the cardholder’s information was stolen) or if the merchant failed to meet a cardholder’s legitimate expectations (e.g., it failed to provide goods or services in a timely fashion; the goods were damaged, defective, or missing parts; or the cardholder was charged an incorrect amount).[103]

D. Online-Payment Gateways as Trusted Intermediaries

Another important piece of the two-sided-market puzzle for online markets was solved in 1999 with the launch of PayPal. Originally conceived as a payment system in its own right, PayPal’s most important function (at least, until recently) has been as a payment gateway—a trusted intermediary that processes card payments.[104] PayPal is itself also a two-sided market, with merchants on one side and consumers on the other.[105] But it’s more complicated: in 2009, it partially opened up its APIs to third parties, thereby enabling others to build interoperable payments systems that would permit true peer-to-peer payments.[106]

E. Escrow and ‘Holds’

Parties to transactions frequently use trusted intermediaries to hold funds until specific conditions have been met, as documented in an escrow agreement. In the United States, escrow had traditionally been used mainly for transactions involving high-value idiosyncratic items, such as real-estate properties and paintings. This also appears to be the case thus far with online escrow services, such as those offered by escrow.com. The likely explanation is that escrow adds complexity and delays to a transaction; where financial remedies are adequate in the event of nonperformance, it is not an efficient solution.

Another reason escrow has not been used more widely for online purchases is that payment networks’ dual-message systems perform a similar function at much lower cost, enabling payments to be put on hold by the merchant until they are satisfied that the client will not issue a chargeback.[107] Some online payment gateways have similar “hold” systems that are very similar to escrow.[108]

But escrow has emerged as an important means to facilitate online commerce in China, where simple financial remedies facilitated by credit-card companies were not available to the majority of consumers. Within that context, online marketplace Alibaba established Alipay in 2003, which was initially an escrow-based system in which a purchaser’s funds were held by Alibaba until the purchase was delivered. As explored in Section 3, this proved to be a phenomenally successful strategy.

[1] Todd J. Zywicki, The Economics of Payment Card Interchange Fees and the Limits of Regulation, Int’l. Ctr. L. & Econ. (Jun. 2, 2010), available at https://laweconcenter.org/images/articles/zywicki_interchange.pdf.

[2] Marc Rysman, The Economics of Two-Sided Markets, 23  J. ECON. PERSP. 125, 130 (2009).

[3] See, e.g., Philip Moore, The State of the American Mall: Competitive, Attractive and Here To Stay, CORESIGHT RESEARCH (Jun. 27, 2023), https://coresight.com/research/the-state-of-the-american-mall-competitive-attractive-and-here-to-stay (noting that a new mall in Atlanta features a Nobu hotel and restaurant).

[4] Gunnar Camner, Emil Sjöblom, & Caroline Pulver, What Makes a Successful Mobile Money Implementation? Learnings from M-PESA in Kenya and Tanzania, GSMA (2009), available at https://www.gsma.com/mobilefordevelopment/wp-content/uploads/2012/06/mpesa_case_study9983.pdf (noting that airtime sharing was not observed in Kenya).

[5] See TONNY K. OMWANSA & NICHOLAS P. SULLIVAN, MONEY REAL QUICK: THE STORY OF M-PESA (Guardian Books, 2012); See also Enabling Mobile Money Transfer: The Central Bank of Kenya’s Treatment of M-Pesa, Alliance for Financial Inclusion (2010), available at afi_casestudy_mpesa_en.pdf.

[6] Banks Find Suite: Find Annual Historical Bank Data, FEDERAL DEPOSIT INSURANCE CORPORATION, https://banks.data.fdic.gov/explore/historical?displayFields=STNAME%2CTOTAL%2CBRANCHES%2CNew_Char&selectedEndDate=2022&selectedReport=CBS&selectedStartDate=1934&selectedStates=0&sortField=YEAR&sortOrder=desc (last visited Jun. 19, 2024); Geographical Outreach: Number of Automated Teller Machines (ATMs), Country Wide for United States, FED. RES. BANK ST. LOUIS (2016), https://fred.stlouisfed.org/series/USAFCACNUM (retrieved from FRED).

[7] Financial Access in Kenya: Results of the 2006 National Survey, Nairobi, Kenya: The Steadman Group Res. Div. (2007).

[8] Id.

[9] Omwansa & Sullivan, supra note 6.

[10] Id.

[11] Id.

[12] Experience M-PESA, Safaricom, https://www.safaricom.co.ke/personal/m-pesa/getting-started/experience-m-pesa (last visited Jun. 13, 2024); Driven by Purpose: 15 Years of M?Pesa’s Evolution, McKinsey & Co. (Jun. 29, 2022), https://www.mckinsey.com/industries/financial-services/our-insights/driven-by-purpose-15-years-of-m-pesas-evolution.

[13] M-Shwari FAQs, SAFARICOM, https://www.safaricom.co.ke/personal/m-pesa/credit-and-savings/m-shwari (last visited June 13, 2024)

[14] Tavneet Suri, Mobile Money, 9 Ann. Rev. Econ. 497, 515 (2017).

[15] Id.

[16] M-Pesa and Your Bank, SAFARICOM, https://www.safaricom.co.ke/personal/m-pesa/do-more-with-m-pesa/m-pesa-and-your-bank (last visited Jun. 13, 2024)

[17] M-Pesa Partners with Visa for Virtual Card Payments in Africa, PYMNTS (Jun. 2, 2022), https://www.pymnts.com/digital-payments/2022/m-pesa-partners-with-visa-for-virtual-card-payments-in-africa; About the M-PESA Globalpay Virtual VISA Card, Safaricon, https://www.safaricom.co.ke/mpesaglobalpay/about (last visited Jun. 13, 2024).

[18] 2021 FinAccess Household Survey, Cent. Bank of Kenya, Kenya Bureau of Nat’l Stat., & FSD Kenya (Dec. 2021), available at https://www.centralbank.go.ke/wp-content/uploads/2022/08/2021-Finaccesss-Survey-Report.pdf.

[19] Suri Tavneet & Jack William, The Long-Run Poverty and Gender Impacts of Mobile Money, 354 SCI. 1288 (2016),  https://www.science.org/doi/10.1126/science.aah5309.

[20] M-Pesa, VODAFONE, https://www.vodafone.com/about-vodafone/what-we-do/consumer-products-and-services/m-pesa (last visited Jun. 13, 2024).

[21] Improving People’s Everyday Financial Experience, Orange (Aug. 28, 2020), https://www.orange.com/en/groupe/nous-connaitre/linnovation-utile-et-source-de-progres-pour-tous/improving-peoples-everyday.

[22] Don Lee, China Charges into Credit Cards, L.A. Times (Oct. 22, 2008), https://www.latimes.com/archives/la-xpm-2008-oct-22-fi-chinacredit22-story.html; The card penetration rate was considerably higher in cities—around 18%, according to a contemporaneous Nielsen survey (rising to 22% the following year). See Survey: China Steps into Credit Card Era, CHINA DAILY (Aug. 9, 2004), https://www.chinadaily.com.cn/english/doc/2004-08/09/content_363531.htm.

[23] The Internet Timeline of China 1986~2003, CHINA INTERNET NETWORK INFO. CTR. (Jun. 28, 2012), https://www.cnnic.com.cn/IDR/hlwfzdsj/201306/t20130628_40563.htm#:~:text=On%20January%2016%2C%202003%2C%20China,to%20the%20Internet%20in%20China.

[24] Infra Section II.A and Appendix

[25] China: A Digital Payments Revolution, Consultative Group to Assist the Poor (Sep. 2019), https://www.cgap.org/research/publication/china-digital-payments-revolution.

[26] What Is Alipay?, CHECKOUT.COM (May 18, 2023), https://www.checkout.com/blog/what-is-alipay.

[27] Yichen Zhu & Sarah Hui Li, A Hangzhou Story: The Development of China’s Mobile Payment Revolution (Lee Kuan Yew Sch. Pub. Pol’y, Nat’l Univ. Sing., 2018), available at a-hangzhou-story.pdf.

[28] Payment Methods, ANTOM DOCS (Apr. 24, 2024), https://global.alipay.com/docs/ac/cashierpay/payment_method.

[29] Barry Elad, Alipay Statistics 2023 – Market Share, Facts and Marketing Trends, ENTERPRISE APPS TODAY (last updated Oct. 10, 2023), https://www.enterpriseappstoday.com/stats/alipay-statistics.html.

[30] WeChat Now Supports Payments Between Users and One-Click Payments, Finance Magnates (Jun. 24, 2014), https://www.financemagnates.com/fintech/payments/wechat-now-supports-payments-between-users-and-one-click-payments (Tencent, the owner of WeChat, established a payment system called TenPay in 2005. That failed to take off, but it remains the official licensed payment provider underpinning Weixin Pay).

[31] Eveline Chao, How WeChat Became China’s App for Everything, Fast Company (Feb. 1, 2017), https://www.fastcompany.com/3065255/china-wechat-tencent-red-envelopes-and-social-money.

[32] Matthew Fulco, The WeChat Economy, From Messaging to Payments and More, CKGSB Knowledge (Aug. 28, 2017), https://english.ckgsb.edu.cn/knowledge/article/the-wechat-economy-from-messaging-to-payments-and-more/#:~:text=Matthew%20Fulco%20Authors,August%2028%2C%202017.

[33] All You Need to Know About WeChat Mini-Programs, GOCLICK CHINA (Jun. 28, 2022), https://www.goclickchina.com/blog/wechat-mini-programs-all-you-need-know.

[34] Shubham Singh, 18 WeChat Statistics — Users & Revenue Data, DEMANDSAGE (May 27, 2024), https://www.demandsage.com/wechat-statistics.

[35]  Multiple Payment Methods, WECHAT PAY, https://pay.weixin.qq.com/wechatpay_guide/intro_method.shtml (last visited Jun. 19, 2024); In-Store Payment, ANTOM DOCS, https://global.alipay.com/docs/instorepayment (last visited Jun. 19, 2024).

[36] Payment Methods in China: How China Became a Mobile-First Nation, Daxue Consulting (Jan. 29, 2024), https://daxueconsulting.com/payment-methods-in-china.

[37] ANTGROUP, https://www.antgroup.com/en/business-development/digital-finance-tab-details/mybank (last visited Jun. 18, 2024).

[38] WEBANK, https://www.webank.com/en/characteristic (last visited Jun. 18, 2024).

[39] Laura He, Visa and Mastercard Can Now be Used on China’s Biggest Payment Apps, CNN (Jul. 21, 2023), https://edition.cnn.com/2023/07/21/tech/china-alipay-wechat-pay-international-credit-cards-intl-hnk/index.html.

[40] INDIA STACK, www.indiastack.org (last visited Jun. 18, 2024)

[41] Vision and Mission, UNIQUE IDENTIFICATION AUTH. INDIA, https://uidai.gov.in/en/about-uidai/unique-identification-authority-of-india/vision-mission.html (last visited Jun. 18, 2024).

[42] Aadhaar Verification API: Innovation in Identity Verification, PERFIOS (Dec. 5, 2024), https://www.perfios.com/post/aadhaar-verification-api-innovation-in-identity-verification; India Population 1950–2024, MACROTRENDS, https://www.macrotrends.net/countries/IND/india/population (last visited June 18, 2024).

[43] Enrolment Dashboard, UNIQUE IDENTIFICATION AUTH. INDIA, https://uidai.gov.in/aadhaar_dashboard/india.php (last visited Jun. 18, 2024).

[44] Unified Payment Interface (UPI), NPCI, https://www.npci.org.in/what-we-do/upi/product-overview (last visited Jun. 18, 2024); UPI Live Members, NPCI, https://www.npci.org.in/what-we-do/upi/live-members (last visited Jun. 18, 2024).

[45] MOBIKWIK, https://www.mobikwik.com/about (last visited Jun. 18, 2024).

[46] Mahesh Sharma, Payments Startup MobiKwik Launches Mobile Wallet As India’s Central Bank Acts To End Country’s Cash Dependence, TechCrunch (Sep. 27, 2013), https://techcrunch.com/2013/09/27/payments-startup-mobikwik-launches-mobile-wallet-as-indias-central-bank-acts-to-end-countrys-cash-dependence.

[47] Jon Russell, Indian Payments Startup MobiKwik Nabs $25M From Tree Line, Cisco, AmEx and Sequoia, TechCrunch (Apr. 7, 2015), https://techcrunch.com/2015/04/07/mobikwik-series-b.

[48] MobiKwik Continues Profitable Streak for Second Quarter in a Row, ECONOMIC TIMES (Oct. 5, 2023), https://economictimes.indiatimes.com/tech/technology/mobikwik-continues-profitable-streak-for-second-quarter-in-a-row/articleshow/104183594.cms?from=mdr.

[49] MobiKwik Consolidated Financial Statement, MOBIKWIK (2023), available at https://documents.mobikwik.com/files/investor-relations/statements/zaakpay/zaakpay-financials-sept2023.pdf; financial statements of other subsidiaries available at https://www.mobikwik.com/ir/subsidiary-financials; RBI notice of “in-principle authorization” available at https://www.rbi.org.in/Scripts/bs_viewcontent.aspx?Id=4236; Report on the Audit of Special Purpose Interim Financial Statements, TATTVAM & CO. (Dec. 31, 2023), available at https://documents.mobikwik.com/files/investor-relations/statements/zaakpay/zaakpay-financials-sept2023.pdf; Subsidiary Financials, MOBIKWIK,  https://www.mobikwik.com/ir/subsidiary-financials (last visited Jun. 19, 2024); Status of Applications Received from Online Payment Aggregators (PAs) under Payment and Settlement Systems Act, 2007, RES. BANK OF INDIA, https://www.rbi.org.in/Scripts/bs_viewcontent.aspx?Id=4236 (last updated Jun. 16, 2024).

[50] Id., Res. Bank of India.

[51] Press Release, Paytm’s Earning’s Release for Quarter and Year Ending March 2024, Paytm (May 22, 2024), available at https://paytm.com/document/ir/financial-results/Paytm_Earnings-Release_INR_Q4_FY24.pdf.

[52] Paytm’s Pricing, Paytm, https://business.paytm.com/pricing (last visited Jun. 19, 2024).

[53] Paytm Reaches 100 Million Users, Business World (Aug. 11, 2015), https://www.businessworld.in/article/Paytm-Reaches-100-Million-Users-/11-08-2015-84698.

[54] Patrick Jenkins, Paytm and Transmit Security Win FT Fintech Awards, FINANCIAL TIMES (Nov. 16, 2016), https://www.ft.com/content/1a92d762-ac1b-11e6-ba7d-76378e4fef24.

[55] Justin Rowlatt, Why India Wiped Out 86% Of Its Cash Overnight, BBC NEWS (Nov. 14, 2016), https://www.bbc.co.uk/news/world-asia-india-37974423.

[56] Paytm Surpasses 100 Million Monthly Transacting Users for the First Time in Q3 FY24, Livemint (Jan. 22, 2024), https://www.livemint.com/companies/news/paytm-surpasses-100-million-monthly-transacting-users-for-the-first-time-in-q3-fy24-11705932856486.html.

[57] PHONEPE, https://www.phonepe.com/about-us (last visited Jun. 19, 2024); Charlie Graham, PhonePe, CONTRARY RESEARCH (last updated Dec. 1, 2023), https://research.contrary.com/reports/phonepe.

[58] Press Release, Walmart to Invest in Flipkart Group, India’s Innovative eCommerce Company, Walmart (May 9, 2018), https://corporate.walmart.com/news/2018/05/09/walmart-to-invest-in-flipkart-group-indias-innovative-ecommerce-company.

[59] Sri Deepti, Flipkart Completes Separation from PhonePe, TECH IN ASIA (Dec. 23, 2022), https://www.techinasia.com/flipkart-completes-separation-phonepe.

[60] Alnoor Peermohamed, Flipkart Grows User Base to 100 million, Business Standard (Sep. 22, 2016), https://www.business-standard.com/article/companies/flipkart-grows-user-base-to-100-million-116092100216_1.html; FLIPKART CATAPULT, https://brands.flipkart.com/catapult-about (last visited Jun. 19, 2024).

[61] Graham, supra note 58.

[62] Ingrid Lunden, Google Debuts Tez, A Mobile Payments App for India that Uses Audio QR to Transfer Money, TECHCRUNCH (Sep. 17, 2017), https://techcrunch.com/2017/09/17/google-debuts-tez-a-mobile-wallet-and-payments-app-for-india.

[63] Google Pay API for India & Google Pay & Wallet Console, GOOGLE, https://support.google.com/google-pay-and-wallet-console/answer/10945206?hl=en#:~:text=Google%20Pay%20API%20for%20India%20operates%20on%20a%20unique%20India,used%20as%20your%20UPI%20ID (last visited Jun. 19, 2024). The version of Google Pay implemented in India is thus quite different to the version implemented in the United States and other markets.

[64] Manish Singh, Google Paves Way to Monetize Pay Users’ Data in India, TECHCRUNCH (Mar. 11, 2021), https://techcrunch.com/2021/03/11/google-pay-paves-way-to-tap-pay-users-data-in-india.

[65] Certificates of Authorisation Issued by the Reserve Bank of India Under the Payment and Settlement Systems Act, 2007 for Setting Up and Operating Payment System in India, RES. BANK OF INDIA, https://rbi.org.in/Scripts/PublicationsView.aspx?id=12043 (last updated Jun. 18, 2024).

[66] Manish Singh, WhatsApp Permitted to Extend Payments Service to 100 Million Users in India, TECHCRUNCH, (Apr. 13, 2022), https://techcrunch.com/2022/04/13/whatsapp-permitted-to-extend-payments-service-to-100-million-users-in-india.

[67] Id.

[68] Id.

[69] Press Release, Vodafone India Launches M-Pesa Pay for Merchants and Retailers, Vodafone (Jan. 5, 2017), https://www.vodafone.com/news/inclusion/m-pesa-pay-india; Aman Rawat, Vodafone Winds Up M-Pesa in India After Huge Losses, INC 42 (Jan. 22, 2020) https://inc42.com/buzz/vodafone-winds-up-m-pesa-in-india-after-huge-losses.

[70] Jackson Lott & Mona Sinha, M-Pesa’s Failure in India: Why Couldn’t Vodafone Replicate its Kenyan Success? An International Marketing Case Study, 6 KENNESAW J. UNDERGRADUATE RES. 1, 12-13 (2019), available at https://digitalcommons.kennesaw.edu/cgi/viewcontent.cgi?article=1160&context=kjur (“In Kenya, Safaricom had invested considerable effort and money over the years to build a critical mass of M-Pesa agents. These were essentially small shop owners across the country, including in villages, who could also serve as M-Pesa agents, available to sell mobile airtime as well as enable M-Pesa wallet top-ups and withdrawals, as needed. However, when Vodafone went to villages in India where most migrant workers came from, they did not find much economic activity. Unable to find small shop keepers who could serve as agents, they could not create as good a network of last-mile agents crucial to the service. Moreover, unlike Kenya, poor, unbanked, or underbanked consumers struggled to adopt self-service technologies and needed assistance. Creating awareness and driving behavior change amongst this segment of the population required tremendous resources in terms of time, money, and human capital that Vodafone would have to divert from its core business in India, i.e., cell phone service. Meanwhile, a slew of mobile payment upstarts entered the Indian market. Unlike Vodafone that aimed to service the unbanked and underbanked, these new entrants, like Paytm, reached out to middle class and affluent consumers who wanted the convenience and lived in urban and semiurban areas where agents could be easily appointed. Given the income profile of their target consumers, their technologies could be based on linking their app to the customers’ bank accounts. This demographic was markedly different from the unbanked/underbanked consumers that M-Pesa serviced who used feature/basic phones and dealt in cash to top-up or withdraw cash from their M-Pesa wallets. Moreover, Paytm had the backing of large investors like Soft Bank and Alibaba. One key trigger event for spurring adoption of digital payments in India was the demonetization announcement by the Prime Minister of India. However, a shortage of cash at that time due to high-value currencies being declared defunct meant that a cash dependent system like M-Pesa did not benefit from the surge of mobile payment adopters.”)

[71] Zaakpay and PhonePe have “in principle approval,” see supra note 47; Google has full approval, see supra note 63; Paytm has been asked to revise and resubmit its application, see Press Release, Update on PA License: Paytm Payments Services Receives Extension From RBI for Resubmission of Application & Remains Hopeful of Getting Necessary Approvals, Paytm (Mar. 27, 2023), https://paytm.com/blog/investor-relations/update-on-pa-license-paytm-payments-services-receives-extension-from-rbi-for-resubmission-of-application-remains-hopeful-of-getting-necessary-approvals.

[72] Hiral Thanawala, e-Rupi Vouchers Get a Boost from RBI Monetary Policy, MONEY CONTROL (Jun. 8, 2023), https://www.moneycontrol.com/news/business/personal-finance/e-rupi-vouchers-get-a-boost-from-rbi-monetary-policy-10766151.html.

[73] Roll Back Zero Merchant Discount Rate on UPI, RuPay Debit Card Payments, Industry Body Payments Council of India Writes to Finance Ministry, INDIAN EXPRESS (Jan. 23, 2022),  https://indianexpress.com/article/business/banking-and-finance/merchant-discount-rate-rollback-on-upi-rupay-debit-cards-7737229.

[74] Pratik Bhakta, Fintechs Await Government Word on MDR Subsidy Allocation, ECONOMIC TIMES (Feb. 22, 2024), https://economictimes.indiatimes.com/tech/technology/fintechs-await-government-support-for-promoting-digital-payments-for-current-fiscal/articleshow/107891943.cms?from=mdr.

[75] Julian Morris, Todd J. Zywicki, & Geoffrey A. Manne, The Effects of Price Controls on Payment-Card Interchange Fees: A Review and Update, Int’l. Ctr. L. & Econ. (Mar. 3, 2022), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4063914.

 

[76] Oi Paggo, LINKEDIN, https://www.linkedin.com/company/paggo/about (last visited Jun. 19, 2024); Paggo, WIKIPEDIA, https://pt.wikipedia.org/wiki/Paggo (last visited Jun. 19, 2024), (information unverified because the links are broken).

[77] Oi Paggo: A Disruptive Brasileiro Credit Play, STL PARTNERS (Jun. 2008), https://stlpartners.com/insights/oi_paggo_a_disruptive_brasilei.

[78] Umair Bashir, Most Used Mobile Payments by Brand in Brazil 2023, Statista (Feb 13, 2024), https://www.statista.com/forecasts/1226566/most-used-mobile-payments-by-brand-in-brazil#:~:text=We%20asked%20Brazilian%20consumers%20about,in%20our%20Consumer%20Insights%20tool.

[79] Crescimento do PicPay: 34 Milhões Usam o App No Dia a Dia, PICPAY (Dec. 14, 2021), https://blog.picpay.com/picpay-crescimento/?utm_source=iupana&utm_medium=web&utm_campaign=010822EN.

[80] Fabiane Z. Menezes, PicPay, Latin America‘s Largest Digital Wallet, Is Now A Bank, THE BRAZILIAN REP. (Jul. 13, 2022), https://brazilian.report/liveblog/2022/07/13/picpay-digital-wallet-bank; PicPay 1H23 Earnings Release, PICPAY (Aug. 2023), at 11, https://api.mziq.com/mzfilemanager/v2/d/f4269298-97ef-427d-ac29-04f9d6a6054a/765c070b-b1ca-b07b-d699-b6a7eb7be191?origin=1.

[81] PicPay, supra note 79, at 2.

[82] Id., at 4.

[83] PayPal User Agreement, PAYPAL, https://www.paypalobjects.com/marketing/ua/pdf/BR/en/ua-032122.pdf?locale.x=en_BR (last visited Jun. 19, 2024).

[84] Mercado Libre SEC Proxy Statement (2023), at 6, https://api.mziq.com/mzfilemanager/v2/d/098a2d95-0ea8-4ed5-a340-d9ef6a2b0053/bfba3d21-84f6-7263-8abc-f32f54dc122d?origin=1.

[85] Id., at 7.

[86] Our History, PAGBANK, https://investors.pagbank.com/about-us/our-history (last visited Jun. 19, 2024).

[87] Our History, PAGSEGURO, https://international.pagseguro.com/about-us (last visited Jun. 19, 2024).

[88] Google Wallet Help, GOOGLE, https://support.google.com/wallet/answer/12059326?hl=en-GB&co=GENIE.CountryCode%3DBR (last visited Jun. 19, 2024).

[89] The Acceleration of Financial Inclusion During the COVID-19 Pandemic: Bringing Hidden Opportunities to Light, MasterCard (Oct. 12, 2020), available at https://www.mastercard.us/content/dam/public/mastercardcom/na/us/en/banks-and-credit-unions/other/mastercard-financial-inclusion-during-covid-whitepaper-20201012.pdf.

[90] Vinicius Colares, Bolsa Merenda PagBank 2021: CADASTRO, VALOR e como RECEBER o BENEFÍCIO…, PRONATEC (Apr. 11, 2021), https://pronatec.pro.br/bolsa-merenda-pagbank-2021-cadastro.

[91] Eduarda Andrade, CAIXA Tem Libera Transferência do Auxílio e Bolsa Família por PIX e TED, FDR (Aug. 18, 2021), https://fdr.com.br/2021/08/18/caixa-tem-libera-transferencia-do-auxilio-e-bolsa-familia-por-pix-e-ted; PICPAY, https://picpay.com/pix (last visited Jun. 19, 2024); Pix, PAGBANK, https://faq.pagseguro.uol.com.br/pix/408#rmclgBank (last visited Jun. 19, 2024).

[92] Manish Singh, Google‘s New Plan to Push Google Pay in India: Cashback Incentives in Android Apps, TECHCRUNCH (May 16, 2019), https://techcrunch.com/2019/05/16/google-pay-india-android-cashback.

[93] A Peek Inside PayPal’s Two-Sided Network of Consumers and Businesses, PayPal (Oct. 27, 2022), https://newsroom.paypal-corp.com/2022-10-27-A-Peek-Inside-PayPals-Two-Sided-Network-of-Consumers-and-Businesses.

[94] PicPay, supra note 79, at 3.

[95] Vladimir Mukharlyamov & Natasha Sarin, Price Regulation in Two-Sided Markets: Empirical Evidence from Debit Cards, SSRN (Nov. 24, 2022), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3328579.

[96] Julian Morris, Central Banks and Real-Time Payments: Lessons from Brazil’s Pix, Int‘l. Ctr. L. & Econ. (Jun. 1, 2022), available at https://laweconcenter.org/wp-content/uploads/2022/06/Lessons-from-Brazils-Pix.pdf.

[97] Julian Morris, Pixtopia Is Not Real, TRUTH ON THE MARKET (Jun. 2, 2022), https://truthonthemarket.com/2022/06/02/pixtopia-is-not-real.

[98] Pierre Omidyar, Founder’s Letter, eBay (Feb. 26, 1996), https://pages.ebay.co.uk/services/forum/feedback-foundersnote.html.

[99] Pierre Omidyar – On Innovation, The Henry Ford (Apr. 29, 2010), https://www.youtube.com/watch?v=RKVmsifohgM&t=295s.

[100] Julian Morris, Consumer Protection in the 21st Century, Int‘l. Ctr. L. & Econ. (Feb. 24, 2023), https://laweconcenter.org/resources/consumer-protection-in-the-21st-century.

[101] The original version of SSL was easily hacked, and thus was not launched publicly. Version 2.0, which was more secure, was included in releases of Netscape in late 1994. See Huzaifa Sidhpurwala, Evolution of the SSL and TLS protocols, RED HAT (Nov. 16, 2016), https://access.redhat.com/blogs/766093/posts/2758801; Phillip Hallam-Baker, Crypto Standards vs. Engineering Habits – Was: NIST About to Weaken SHA3?, ianG.org (Oct. 4, 2013), https://www.metzdowd.com/pipermail/cryptography/2013-October/018041.html.

[102] PCI SECURITY STANDARDS COUNCIL, https://www.pcisecuritystandards.org (last visited Jun. 19, 2024).

[103] Troy Segal, What Is a Chargeback? Definition, How to Dispute, and Example, Investopedia (Dec. 15, 2023), https://www.investopedia.com/terms/c/chargeback.asp.

[104] There are now many other online-payment gateways, including Worldpay, Stripe, and Square/Block.

[105] The company even talks about itself as a “two-sided network,” see PayPal, supra note 93.

[106] Sebastian Rupley, PayPal’s (Partially) Open Platform to Usher in New Payment Models & Apps, GIGAOM (Nov. 3, 2009),  https://web.archive.org/web/20110102142203/http://gigaom.com/2009/11/03/paypals-partially-open-platform-to-usher-in-new-payment-models-apps.

[107] Credit/Debit Authorisation Holds Explained, GOCARDLESS (last updated Mar. 2022), https://gocardless.com/guides/posts/credit-debit-authorisation-holds-explained.

[108] How to Resolve Payment on Hold or Unavailable Funds, PAYPAL (Oct. 10, 2023),  https://www.paypal.com/uk/brc/article/funds-availability.