How Digital Wallets Are Helping to Bridge the Financial Divide in Emerging Markets
Digital wallets are a popular FinTech phenomenon that have taken the world of online payments by storm in recent years. They are methods of storing funds and making payments using wireless technology on mobile devices; popular examples include ApplePay, Venmo, PayPal, and AliPay. They allow you to add bank card information, as well as gift cards, electronic tickets, identification cards, and more. In 2021, 48.6% of global eCommerce transaction value was attributed to digital wallet usage, which this year’s FIS Global Payments Report anticipates will reach 52.5% by 20251.
Benefits of Digital Wallets
Digital wallets have many advantages, not least the convenience of alleviating the need to carry physical payment methods around, or the ability to transfer money to friends and family, in transactions known as peer-to-peer (P2P) payments. A fully functional Android phone can be purchased for $25. These devices are equipped with Near Field Communication (NFC), which enables a connection between devices, and the ability to scan and display QR codes. This type of payment method can be processed immediately, as well as securely.
The Covid-19 pandemic had a huge impact on the number of people adopting mobile payment methods as a means of making online purchases, as well as limiting exposure to the virus caused by handling cash or visiting ATMs.
Among their many benefits, these payment methods are a key component of financial inclusion. While a lot of people choose to link their bank accounts to such applications, enabling them to add stored value or carry out transactions using electronic versions of their existing payment cards, digital wallets do not require access to a bank account. This is monumental in increasing digital payment access for people around the world, particularly those in emerging markets.
According to a report by the World Bank, around 1.4 billion people worldwide are unbanked, the majority of whom are based in emerging market countries – which refer to economies that are on their way to being fully developed, but aren’t quite there yet. This bears huge significance given that developing markets are home to 85% of the global population, including 90% of people under the age of 302. People in this demographic are significantly more likely to embrace technological solutions to everyday problems than members of older generations. It is no surprise, therefore, that the number of people using online payment methods is growing within these regions. The number of adults in developing economies making or receiving digital payments grew from 35% in 2014, to 57% in 2021. This is in stark contrast to those in high-income economies, which saw 95% of adults opting for digital payment methods in 2021 (increasing by only 7% since 2014). So, what are the added benefits of digital wallets that are unique to people living in emerging markets?3
Impact on Emerging Market Economies
Digital payment methods can have a huge impact on increasing access for those based in areas that are more rural, or without access to physical banks – particularly if they are from low-income backgrounds. Making it easier for people to receive funds – be it from their employers, local governments, or friends and family who live elsewhere – increases their financial security. Through eCommerce, they can access more resources worldwide, and participate in financial markets beyond those that are local to them, which in turn benefits their own economies.4
For women in particular, being able to access funds via mobile payments promotes financial independence and security. In many cultures, women still lack autonomy when it comes to finances, and must often defer to their male family members. Having access to electronic payment options empowers them to make important decisions when it comes to household expenditures. A government workfare program in India demonstrated that paying female digital account holders their salaries directly – rather than through a male family member – increased their financial control and, as a result, their ability, and desire to work.5
Of course, a prerequisite of digital wallet usage is having the means to access them. Many people in emerging markets may not have the funds to support the ownership, or upkeep of digital devices. Electricity, network coverage, and traditional POS (Point Of Sale) machines are all crucial elements of technological accessibility that many are not fortunate enough to have. For example, a POS machine is likely to cost a seafood market vendor in Indonesia more than their fishing boat.
Boosting worldwide financial inclusion is not an easy feat, and the digital divide is layered and complex. However, as PWC have recognized, it is well within the interest of emerging market governments to do what they can to increase their populations’ digital access. Adapting their growing economies to a world that is becoming exponentially more digitized each year, is the best way to encourage and enable the financial freedom of their populations.6
Zotapay’s gateway technology – The MetaGate – enables businesses to access extensive coverage of local payment methods in remote regions and emerging markets. With our premium services, we can help you optimize your payment options to increase your global market reach.
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