When Interoperability Stops Feeling Interoperable
An open payment rail can coexist with a closed-feeling daily experience. This chapter examines how UPI’s front end can rebuild practical lock-in through merchant interfaces, bundled services, data, and patterns of use, then compares those mechanisms with broader payment-market concentration. The aim is to diagnose what a high market share may mean before treating it as either proof of efficiency or proof of abuse.
When a shared rail still produces same-app behavior
Technical interoperability changes what a payment can do, but not necessarily what users believe they can do. A payer may be able to send money to a merchant using another provider, yet still encounter a code that appears to accept only one app. A provider may technically connect to every participant, yet make its own network the easiest one to use repeatedly. The difference is between an interoperable rail and an interoperable user experience.
UPI’s long-run evidence shows why that distinction matters. Several aggregate measures of concentration in the app market rose as the platform matured. In about half of UPI transactions, the payer and payee use the same app, a share that has remained roughly stable in recent years. The two largest apps also became more regionally specialized. Neither pattern proves that users were unlawfully prevented from switching. Both are signals that providers may have found ways to make same-app relationships valuable again, even though cross-provider payments remain possible underneath.
The most direct route is the merchant QR code. QR codes reduce friction because a customer can scan rather than type account details. But a QR code can also become a private gate. If a merchant’s code works only with the issuing provider’s app, the merchant’s choice steers customers toward that app. Customers then have a reason to adopt the provider that appears at the point of sale, and other merchants may follow the same pattern because they want access to those customers. A tool that makes payment easier can therefore recreate the same coordination loop that interoperability was designed to weaken.
This is why the usability of a shared standard matters. The IMF reports that some UPI providers initially offered proprietary, closed-loop QR codes that could be read only by their own apps. India’s Reserve Bank prohibited non-interoperable QR codes to reinforce UPI as an open system. Even when a code is technically interoperable, inconsistent branding can create the impression that it belongs to one provider. If customers do not know that another app can scan it, formal compatibility does not translate into practical choice.
The mechanism has two stages. First, the interface determines which action is easiest or even visible to the user. Second, repeated use builds a local network around that interface: the customer sees the same code at a merchant, the merchant sees customers arriving through the same app, and each side has less reason to test alternatives. The underlying rail may still connect providers, but the everyday point of interaction can push the market back toward provider-specific participation. Interoperability has not disappeared; its value has been obscured or made inconvenient.
A similar pattern can emerge through the services attached to a payment app. UPI’s zero-fee structure means that providers may support payment activity through complementary products such as lending and insurance.