There’s no doubt that digital transformation has presented numerous benefits for the developed world, increasing the convenience and efficiency of workplaces, homes, automobiles, and even entire cities. But did you know that digitization is also helping to lift some nations out of poverty?
Throughout the world’s emerging economic regions, nearly 50 percent of adults lack access to basic financial services such as banking and credit. However, mobile technology can help to remedy this situation, empowering individuals with a sense of economic independence, security, and opportunity. Across the globe, the combination of smartphones and digital finance services is giving the citizens of developing nations the necessary resources to take charge of their own financial futures and advance entire economies. The following are just a few ways that digital finance is helping to advance the global community:
Connecting people to more sophisticated financial services and opportunities
Many individuals are unbanked simply because they live too far away from financial institutions, but digital banking provides them the opportunity to pay utilities bills, send money to friends and relatives, and even gain access to credit without ever leaving the home. A reliable system of personal banking opens the door to countless new opportunities, such as saving for a long-term educational goal or launching a business. According to a report by the McKinsey Global Initiative, digital finance tools could grow the collective GDP of emerging economies by $3.7 trillion by 2025—a 6 percent increase projected to yield as many as 95 million new jobs. In addition to the approximately 2 billion unbanked adults around the world, there are also 200 million unbanked micro, small, and mid-sized businesses. For these emerging companies, digital banking can provide a more secure and convenient way to complete transactions with customers and suppliers, and can assist business leaders in accumulating capital.
Approximately 20 percent of the 2 billion adults without personal bank accounts cite their lack of personal documentation as a major obstacle to banking. However, mobile technologies are increasingly incorporating biometric security systems such as fingerprint or iris scans, which can greatly simplify financial verification processes for citizens of developing nations. In addition to eliminating the need for customers to provide personal paperwork in order to open an account, biometrics can also eliminate hard-to-memorize personal identification numbers.
Enabling Electronic Payments
In most emerging economies, cash is the primary form of payment. Seven million unbanked private sector workers in Mexico receive their wages in cash, as do 8 million employees in Brazil and 440 million farmers across the world. However, mobile technology can make direct deposit a possibility for these and millions of other workers around the world. Many individuals are already enjoying the increased security and convenience of digital banking in Kenya, Uganda, and Tanzania, countries where over 10 percent of adults receive direct deposit payments for their crops. Governments around the world are also leading the way in the area of private payments, increasingly choosing to pay employees and distribute social services via digital channels.
In addition to being less expensive and helping to negate corruption, digital payments also encourage participation in personal banking. Approximately 50 percent of bank account-holders in Mexico, Brazil, and South Africa receive government wages or safety net payments in a digital account, and 15 percent of these individuals initially opened their accounts for the purpose of receiving those payments. If governments around the world implemented digital payments, it could urge an additional 160 million adults to open bank accounts.
Access: A Significant Challenge
It’s clear that digital banking can help individuals around the world advance economically, while at the same time spurring economic progress on a national level. However, access to technology still remains as a significant barrier to financial empowerment for many people in developing nations. Access to mobile phones varies widely in emerging economies: 61 percent of adults own a cell phone in Mexico, while ownership rates in both Russia and China exceed 90 percent. However, access to both a mobile phone and the Internet is far less common.
Cell phone ownership also varies across demographic boundaries. Understandably, wealthy citizens of emerging economies are more likely to own mobile phones and utilize digital finance tools, and 200 million fewer women than men own cell phones worldwide.
Fortunately, access to both mobile phones and digital banking is on the rise. In a 2015 report, the World Bank revealed that the global number of adults without bank accounts decreased by 20 percent between 2011 and 2014, with 700 million people opening accounts for the first time. If the global community is to take full advantage of the many personal and economic benefits of digital banking, it is clear that this trend of increased access to technology must continue.