While some people take for granted the fact that we can now handle our finances online, send money to loved ones or business contacts online, and avoid long lines at bank branches by making digital payments with a mobile phone, a huge chunk of people are still cut off from this reality.
Even taking away the lack of massive mobile penetration or the high cost of data in developing countries which are part of the reasons more people do not engage in digital payments, a study by the McKinsey Global Institute shows that in developing nations two billion people don’t have access to basic financial services such as savings accounts and credit.
The study went on to show that by giving most of those people access to those basic financial services via mobile phones and internet connectivity, the GDP of the economies would increase by $3.7 trillion by 2025, a 6% boost.
Part of that growth will be on account of the increased productivity of using digital payments instead of cash, using electronic record-keeping instead of paper, and increased investment as businesses are brought into a formal financial system and credit becomes more easily available, all advantages of digital payments.
The report which was published on September 21 argues the point that access to these basic services would reduce inequality, poverty, and even government corruption and therefore go beyond unlocking another market for the financial industry. It says:
“Economic development is usually a long journey, but digital finance solutions can radically speed the progress, and at a relatively affordable cost.”
According to them, struggling economies like those of Ethiopia, India and Nigeria could increase their GDP by up 12%. They estimate that Indians lose more than $2 billion a year in forgone income simply from the time spent traveling to and from a bank.
By encouraging digital payments and financing these developing countries would be better able to finance small businesses, monitor government spending and a plethora of other transactions would be made easier. McKinsey summarizes their study as follows;
“Widely used digital finance has the power to transform the economic prospects of billions of people and inject new dynamism into small businesses that today are held back for lack of credit. Rather than waiting a generation for incomes to rise and traditional banks to extend their reach, emerging economies have an opportunity to use mobile technologies to provide digital financial services for all, rapidly unlocking economic opportunity and accelerating social development.”
So digital payments are a matter of convenience but they are more than that, according to this report they can help struggling economies save money and encourage small businesses.