Most people and small businesses in emerging economies today do not fully participate  in the formal financial system.1
They transact exclusively in cash, have no safe way to save or invest money, and do not have access to credit beyond informal lenders and personal networks. Even those with financial accounts may have only limited product choice and face high fees. As a result, a significant amount of wealth is stored outside the financial system and credit is scarce and expensive. This prevents individuals from engaging in economic activities that could transform their lives. Economic growth suffers. Digital finance offers a transformational solution, and one that could be implemented rapidly and without the need for a major investment of costly additional infrastructure.

Digital Finance open access to financing for people at all income levels

Banks, telecoms companies, and other providers are already using mobile phones and other readily available technologies to offer basic financial services to customers. Using digital channels rather than brick-and-mortar branches dramatically reduces costs for providers and increases convenience for users, opening access to finance for people at all income levels and in far-flung rural areas. For businesses, financial service providers, and governments, digital payments and digital financial services can erase huge inefficiencies and unlock significant productivity gains. Capturing this opportunity will require a concerted effort by business and government leaders. The rewards are substantial. Rather than waiting for 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.

Digital technologies enable broad-based financial inclusion

Mobile and digital technologies, which are spreading around the world at extraordinary speed and with disruptive power, can change this situation. In emerging economies, the next frontier is finance. For most people in these countries, the story begins in the palm of their hand, with a mobile phone. This can provide easy access to a digital wallet that could be used for all payment transactions, such as receiving remittances, wages, and government subsidies, making purchases at stores, or paying utility bills and school fees. Using a mobile phone rather than cash saves considerable travel time and cost, reduces the risk of theft, and boosts convenience. It also gives access to a broader range of financial services that can be
delivered digitally, such as savings accounts or loans.

Digital fiance could boost the DP of emerin economies

Individuals- people could improve their management of income and expenses, save for big-ticket items like durable goods, invest in their farms and businesses, and put money aside for unexpected economic shocks. In Malawi, farmers whose income from crop sales was deposited directly into accounts spent 13 percent more on inputs for their future crops and achieved a 21 percent average increase in yields from the following year’s harvest in comparison to farmers who received payment in cash.

Businesses- Digital payments create an electronic record of sales and expenses, enabling businesses to improve their tracking and analysis of cash flow, streamline management of suppliers, and enhance their understanding of operations and
customers. One example is iZettle, a payment processor operating in Brazil, Mexico, and 11 other countries. Through a smartphone app, it enables small businesses to process digital payments, tracks and evaluate their sales data, and monitor profitability, raising their productivity and profitability. Digital records for revenue and expenditure also enable businesses to demonstrate their credit quality to lenders. Combined with the deposits gathered from newly included individuals, we calculate that digital finance could unlock an additional $2.1 trillion of loans to individuals and MSMEs, helping productive but credit-constrained businesses expand operations and invest in new technologies.

Financial-services providers. Digital finance offers significant benefits—and a huge new business opportunity—to providers. By improving efficiency, the shift to digital payments from cash could save them in direct costs. As more people obtain access to accounts and shift their savings from informal mechanisms,  new deposits could flow into the financial system—funds that
could then be loaned out. To unleash the full range and potential of new forms of digital finance, however, a much wider variety of players than banks will likely be involved. These may include telecoms companies, payment providers, financial technology
startups, microfinance institutions (MFIs), retailers and other companies, and even handset manufacturers.

Digital finance unlocks new business models

In the long term, the benefits of digital finance go far beyond expanding access, driving down costs, and increasing the convenience of transactions. Like electricity or roads, a digital-payment network is part of the basic infrastructure of an economy that enables individuals and businesses to transact with one another seamlessly. It also can underpin a broader and more innovative array of business activities. Assessing the full range of new business models that could emerge is beyond the scope of this research. But at least three types of new business innovations are already apparent and could further transform the lives of individuals in, and economic prospects of, emerging economies.