More and more people are realizing that digital payments are a big reason why GDP is growing in developing countries. In the past, many people relied on cash and informal banks. Mobile wallets, fast payment systems, and QR-based solutions have quickly changed the way people and businesses in India, Kenya, Indonesia, and Vietnam do business. These changes aren’t only for convenience; they’re also changing how people can receive money, pay their taxes, and the economy as a whole, which all lead to higher output and faster growth.
In underdeveloped countries, digital payments make it easier and cheaper to send money. This makes it easier for wages, corporate earnings, and government payments to go through the economy. For tiny and micro businesses, dealing with cash, going to the bank in person, and using informal credit networks are all slow and expensive. Digital transfers and mobile money transactions, on the other hand, can be done in only a few seconds. This helps businesses put their working capital back into the business more quickly and helps workers keep track of their spending. Economists say that even small rises in the usage of digital payments can add several tenths of a percentage point to GDP growth each year, especially in countries where cash has been the norm.
India is an excellent example of how a national digital payments stack may boost economic growth. The Unified Payments Interface (UPI), which started in 2016 and conducts tens of billions of transactions every month, is the main part of India’s retail payment system. A lot of people who work on the street, have a kirana company, or do gig work use UPI. This puts their sales into the legitimate banking system, which means the government may tax more money. Banks and fintech lenders can use these payments’ transaction histories as credit scores instead of regular ones. This means that they can now give working capital loans to businesses who didn’t have a bank account before. Indian policymakers contend that UPI and other digital payment systems are linked to inclusive growth and GDP growth because they say that every rupee spent digitally moves through the economy faster than one stored in cash.
Mobile money systems like M-Pesa in Kenya show that digital payments can operate better than normal banks in sub-Saharan Africa. Mobile wallets have helped tens of millions of individuals in Kenya, Tanzania, and Uganda get basic banking services. This is because they don’t have a lot of branches and not many people utilize cards. People who use mobile money say they save more, can get to emergency cash more easily, and are less likely to be affected by rapid fluctuations in income. This makes how people spend and invest their money more stable. Farmers can now receive compensated for their goods over the internet. This means they don’t have to depend on middlemen who take advantage of them as much, and they can get new tools and materials faster. Kenya’s research shows that M-Pesa’s rise helped raise hundreds of thousands of families out of poverty and had a substantial effect on the growth of per-capita income during the past ten years.
More people in Southeast Asian countries like Indonesia, Thailand, and Vietnam are using digital payments because more people have smartphones, e-commerce is growing, and the government is supporting programs that make them easier to use. QRIS in Indonesia and PromptPay in Thailand are both national systems that connect banks, e-wallets, and retailers into one digital payments system. Online stores, food delivery applications, and digital entertainment platforms should all be able to use digital payments without any problems. All of these businesses are significant to the services sector’s GDP. People who live in places where there aren’t many banks can also join the formal economy by using digital wallets and QR codes to make payments. The Bank of Indonesia has made it clear that its plan for national digital payments is linked to the goal of increasing the value of non-cash transactions as a percentage of GDP. The bank believes that this is a very significant way to promote growth that is both long-lasting and open to everyone.
Economists have found many ways that digital payments can help developing countries grow their economies more quickly. Transactions made with digital money are faster than transactions made with cash. This accelerates the flow of money faster and gives each unit of cash more power over output. Second, automation, less fraud, and cheaper expenses for managing cash free up bank resources for lending and investing instead of paying for administrative expenditures. Third, transaction data from digital payment systems helps lenders get a better idea of how risky a loan is. This means banks might lend to folks who were rejected down before and help businesses get started. Finally, as more businesses start to accept digital payments, the tax and regulatory system starts to watch them more closely. This is good for long-term growth and good government. Along with more traditional measures like the bank credit-to-GDP ratio, international organizations and central banks are starting to use digital payments as a sign of financial depth and structural change.
How digital payments effect growth depends a lot on how rules and procedures are set up. In successful emerging economies, banks, wallets, and fintechs must all operate together. This makes network effects stronger and more people use it. They also have rules that are strong but not too strict that protect customers, keep data private, and stop money laundering, all while letting new ideas in. There are several relationships between the public and private sectors. The government pays for real-time payment systems, but it’s up to the private sector to come up with innovative ways for individuals to pay. Financial literacy initiatives help families and small companies how to safely and effectively use digital payments. Digital payments haven’t taken off as swiftly as they could have because regulators have been too slow or created rules that are too strict.
Digital payments are helping underdeveloped countries’ economies grow.
