Responsible Finance Forum

The Opportunities of Digitizing Payments

Leora Klapper and Dorothe Singer
28 August 2014
Source:  The World Bank Group
 Better Than Cash Alliance
 The Bill and Melinda Gates Foundation

How digitization of payments, transfers, and remittances contributes to the G20 goals of broad-based economic growth, financial inclusion, and women’s economic empowerment

Financial inclusion is broadly defined as both access to and usage of appropriate, affordable, and accessible financial services. Comparative global data finds that the use of a deposit account at a bank or other formally regulated financial institution varies widely across regions, economies, and individual characteristics. Worldwide, 50 percent of adults report having an individual or joint account at a formal financial institution, according to data from the Global Findex database. But current statistics on the high rate of financial exclusion, particularly in developing countries and among women, illustrate key challenges for policymakers to address:

  • Globally, more than 2.5 billion adults do not have a formal account.
  • Only about one out of every five adults living on less than $2 (U.S.) per day has a formal account—that means nearly 80 percent of poor adults are excluded from the formal sector.
  • While accounts are nearly universal in high-income economies, with 89 percent of adults reporting that they have an account at a formal financial institution, less than half that number of adults in developing economies is banked: only 41 percent.
  • For women in developing countries, the situation is worse: Only 37 percent have formal accounts, compared to 46 percent of men.

Without access to the formal financial system, women, poor people, small businesses, and otherwise excluded people must rely on their own (extremely limited) informal and semi-formal savings and borrowing to finance educational and entrepreneurial investments, thus making it harder to alleviate income inequality and spur broad-based economic growth. However, those who are excluded from the formal financial system are likely to be recipients of payments—not just wages and government-sponsored social transfers, but also, increasingly, remittances from family members who have left home in search of economic opportunity either elsewhere in the country or abroad.