China, India, and the Contested Politics of Payments

by Mihir Kshirsagar, Jeremy McKey, and Felix Chen at Princeton’s Center for Information Technology Policy.

by Mihir Kshirsagar, Jeremy McKey, and Felix Chen

China processes the highest volume of digital payments in the world—hundreds of billions of transactions in 2024, the overwhelming majority mediated through two apps, Alipay and WeChat Pay. India, meanwhile, accounts for the world’s largest volume of real-time payments through the government-built Unified Payments Interface (UPI), which enables instant, bank-to-bank transfers. Both countries have leapfrogged credit and debit cards, moving to a world of ubiquitous QR codes.

The conventional framing casts these as “private” versus “public” systems. China’s ecosystem began with private actors building payments into e-commerce and messaging platforms; India’s began with state-built infrastructure through the United Payments Interface (UPI). But this binary obscures what the two systems share: both have evolved into duopolies. Google Pay and PhonePe dominate UPI; Alipay and WeChat Pay dominate payments in China. The difference lies in the underlying architecture. India built interoperable public rails and got private concentration at the user interface. China has closed-loop private platforms and has been grafting public control onto the backend ever since. Both economies appear to have converged on a similar market structure, albeit with different governance levers. Understanding how each arrived at duopoly—and what that market structure makes easy or hard to change—reveals more than the public-versus-private frame can.

China: The Publicization of Super-Apps

Contrary to expectations, China’s payments revolution did not begin as a state project. Instead, it started as a set of workarounds devised by private firms. In the early 2000s, Alibaba (e-commerce) and Tencent (online messaging) faced a common problem: in an environment of low credit card adoption and sclerotic banking infrastructure, how could users pay for goods and services online? Their early solutions —escrow accounts in Alibaba’s case and virtual “Q-coins” in Tencent’s—evolved over time into Alipay and WeChat Pay. Today, those two platforms together mediate over 90 percent of all digital payments in China, making them nearly impossible to avoid in everyday economic life.

These two apps scaled rapidly in part because they were seeded in unusually fertile economic and technological ground. Widespread smartphone adoption made QR-code–based payments easy and intuitive, while a relatively permissive regulatory environment allowed the platforms to expand with little early constraint. As Alipay and WeChat Pay grew to scale, however, that posture began to shift. A turning point came in 2017, when regulators introduced two major interventions. First, they required private payment service providers to hold customer funds in custodial accounts at the central bank—initially 20 percent, later rising to 100 percent. Second, they created NetsUnion, a centralized clearinghouse through which all third-party payment providers would interface with the banking system.

What motivated this regulatory turn in 2017? Part of the answer is technocratic. As Alipay and WeChat Pay gained scale, regulators became increasingly concerned about systemic risk—especially given the size of their nascent lending operations—and about competition in a market dominated by two firms with formidable barriers to entry. On these grounds, regulators could plausibly claim success in restoring stability and contestability. But the turn also carried a political dimension. As the super-apps accumulated infrastructural power, they began to challenge long-standing assumptions about state authority over finance. This tension became especially visible after Alibaba founder Jack Ma publicly criticized regulators at a Shanghai fintech summit in 2020. Regardless of how one weighs these technocratic versus political motivations, however, the outcome is clear: over the past decade, China’s private payment platforms have gone through successive efforts at “publicization” , a term used by legal scholar Jody Freeman to describe how public laws bend the actions of private actors toward societal values while retaining elements of private ownership.

India: The Private Dimension of Digital Public Infrastructure

If China arrived at digital payments from the bottom up, India arrived from the top down. Rather than allowing private firms to build first and regulating later, the Indian state deliberately constructed the core infrastructure for digital retail payments itself. At the center of this ecosystem is the Unified Payments Interface (UPI), a public gateway that enables instant, bank-to-bank transfers initiated by payment systems providers outside the banking sector. While the state retained control over the rails, private firms were explicitly invited to compete at the interface layer. This design rested on a decade of prior policy interventions, including formal digital identity and expanded access to bank accounts, as well as on a deliberate choice to keep transactions free. The aim was to lower barriers to entry for small merchants and bring informal economic activity into the formal financial system.

In many respects, UPI has exceeded policymakers’ expectations. Adoption was explosive, with UPI now processing over half a billion transactions per day. But a decade after its launch, the very feature that fueled UPI’s initial success, zero transaction fees, has proven to be a double-edged sword. If regulators anticipated vibrant competition among many firms offering services on interoperable public rails, they would be sorely disappointed. Today, though dozens of companies are licensed to use UPI, just two—Google Pay and PhonePe (owned by Walmart)—control 80 percent of transaction volume. Interoperability was meant to level the playing field, but its effects have been counterbalanced by zero transaction fees that de facto favor large platforms with the financial capacity to subsidize free payments at scale while monetizing users elsewhere.

The result is that, like Alipay and WeChat Pay in China or Visa and Mastercard in the United States, India’s payments ecosystem has evolved into a de facto duopoly. “Private innovation on public rails” is often invoked as the mantra of DPI, but the Indian payment story points to a more complicated reality: public rails depend on private, user-facing platforms to deliver services the state is neither equipped nor inclined to provide. (A case in point: India’s own government-built app, BHIM, accounts for less than one percent of transactions.) This dependence has begun to reshape policy. An early effort to cap market share was quietly paused , and regulators have signaled increasing openness to introducing a merchant discount rate. These moves reflect a growing recognition that sustaining a national payments infrastructure requires allowing private platforms to earn profits and concentrate power.

Payments, Platforms, and the State

UPI remains a success story of public payment infrastructure. And China’s ecosystem is a testament to private innovation under permissive early conditions. But both have arrived at the same destination: duopoly. And both now face a common set of hard choices to address the shortfalls of their payment systems.

The first is competition versus inclusion. Zero transaction fees helped UPI achieve scale, but it also handed the market to two platforms with the capacity to subsidize free payments. China’s closed-loop systems achieved inclusion through ubiquity, but the same walls that locked users in now complicate efforts to open the market. The second is speed versus fraud. Instant, irrevocable settlement is a feature until it becomes an attack surface. Both systems must decide how much friction to reintroduce by design. The third is sovereignty versus interoperability. As both countries explore cross-border linkages, they confront the tension between domestic control and regional reach.

Duopoly, once established, is sticky. In India’s case, this is especially striking: UPI was designed in part to escape the Visa/Mastercard trap—the interchange fees, the foreign dominance, the concentrated market power. It avoided that trap and walked into another. China never faced the same choice because foreign card networks were blocked from the start. But China’s subsequent interventions—mandating that platforms hold funds at the central bank, routing all transactions through a state-run clearinghouse—reflect a different concern that private firms had accumulated gatekeeping power the state never intended to cede. Whether payment systems inherently tend toward duopoly remains an open question. What’s clear is that neither public rails nor private platforms offer an easy escape to the concentration problem. The lesson is that governance in this space is not a matter of choosing between state and market, but of negotiating the terms under which public authority and private power are jointly exercised.

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Mihir Kshirsagar, Jeremy McKey, and Felix Chen are co-authors of Digital Rails, a blog about the new infrastructure of the digital economy hosted by Princeton’s Center for Information Technology Policy.

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Mihir Kshirsagar directs Princeton CITP’s technology policy clinic, where he focuses on how to shape a digital economy that serves the public interest. Drawing on his background as an antitrust and consumer protection litigator, his research examines the consumer impact of digital markets and explores how digital public infrastructure can be designed for public benefit. His interest in DPI was sparked by the potential for it to serve as a tool to level the competitive playing field for digital services. He taught a course at Princeton that examined the intellectual underpinnings of DPI in the Spring of 2024 and has convened workshops about the topic in Princeton, Washington D.C., and Mumbai to explore emerging themes. Mihir has an undergraduate degree from Harvard and a law degree at the University of Pennsylvania.

Jeremy McKey is a tech policy researcher at Princeton’s CITP and a policy fellow at Harvard Kennedy School’s Allen Lab. Previously, he was Director of Special Projects at the Rockefeller Brothers Fund, where he led a funding initiative focused on U.S. democracy. His interest in DPI emerged while pursuing an MPA degree, where he had the chance to spend several months in New Delhi researching the India Stack. He is particularly interested in the geopolitics of DPI payment systems, as well as the ways that DPI can contribute to a vision of democratic renovation. Jeremy has an undergraduate degree from the University of Chicago and his Master’s degree from Princeton.

Felix Chen is a researcher at Princeton’s CITP, where he works on projects related to the societal impacts of AI, competition, and DPI. His interest in DPI stems from previous research into municipal data practices and their effects on constituent trust, through a case study of the city of Boston. Additionally, he has worked on decentralized social technologies and public procurement at local and sub-national levels. Felix has an undergraduate degree from Harvard.

Every March, the Princeton University Policy Student Government, the graduate student government body of the Princeton School of Public and International Affairs (SPIA) at Princeton University, organizes a Service Auction, an annual flagship event organized by SPIA graduate students to raise money for a local charity.

In the last auction, when I was pursuing the mid-career Master in Public Policy (MPP) degree at SPIA, Jeremy McKey, a Master in Public Affairs student then, generously bought my donation “Publish an article in Pekingnology with 17,000 subscribers”.

Now, I’m happy to share an article by Jeremy together with Mihir Kshirsagar and Felix Chen at Princeton, who have also launched Digital Rails, a blog about the new infrastructure of the digital economy hosted by Princeton’s Center for Information Technology Policy. (By the way, Pekingnology now counts 23,000+ subscribers!)