Supply side drivers of digital payment adoption in India

Abstract This study examines the drivers of digital payment adoption across 711 Indian districts within the Unified Payments Interface (UPI) ecosystem from 2020 to 2024. Utilising a multi-method empirical approach—including mixed-effects models, first-differences, and quarterly distributed lag analyses—we investigate whether merchant network development or digital infrastructure represents the primary constraint on adoption. The results reveal that business ecosystem development, measured by formal UDYAM registrations, is a significantly stronger driver of adoption than internet connectivity. Cumulative merchant effects were found to exceed infrastructure effects by a factor of approximately six in quarterly analyses. A quasi-experimental analysis of India’s staggered 5G rollout identifies a structural break in this relationship: once a threshold of high-speed connectivity is reached, incremental infrastructure improvements yield near-zero marginal returns for user onboarding. In this post-5G regime, the merchant network emerges as the nearly exclusive driver of new user registration. On the demand side, our findings reveal a stark cross sectional gender digital divide; while men’s mobile finance participation is a dominant driver of adoption, women’s participation remains statistically insignificant. Interpreted through Rogers’ Diffusion of Innovation curve, women currently occupy the status of late adopters or laggards, facing accessibility barriers and structural constraints rather than demand deficits. These results directly engage with Sustainable Development Goals (SDGs) 5, 8, 9, and 10. We conclude that as connectivity reaches saturation, policymakers must pivot from “providing pipes” to “empowering participants”. This requires prioritising merchant formalisation alongside targeted digital skilling and consumer education for women to mitigate the gender digital divide and achieve inclusive, sustainable economic growth.