The rise of digital financial inclusion during the COVID-19 pandemic

When COVID-19 hit, governments rushed to provide financial relief to citizens, often using digital channels to do so. At the same time, social distancing forced people to find alternatives to cash and face-to-face shopping. These shifts fueled speculation that the pandemic would create an overall rise in digital financial inclusion.

A new study by the World Bank measures how the pandemic changed the way people make merchant payments in Latin America and the Caribbean (LAC). We estimate that 11% of adults in LAC – roughly 50 million people – took up digital in-store merchant payments during the pandemic’s first year , with the share of new digital adopters ranging from about 15 % of adults in Argentina and Costa Rica to about half as many in El Salvador and Jamaica (Figure 1).

Figure 1: In LAC, 50 million adults adopted digital merchant payments for the first time during COVID-19

Share of adults who used a card, mobile phone, or the internet in a store for the first time in 2020

 

Our estimates are based on nationally-representative surveys with 14,000 adults conducted in 14 LAC economies in 2020. In Mexico and Argentina, we were able to gather more detailed data on a broader range of digital payment use cases – these results will be discussed further in a forthcoming blog post. The surveys were administered by Gallup, Inc in association with the Gallup World Poll survey and in coordination with the Global Findex team.

We provide fresh numbers on how many adults overall use digital merchant payments—whether in-store or online. We define digital merchant payments as using a card, mobile phone, or the internet to make a purchase online or in-store. The data suggests that about 4 in 10 adults regionally use such payments. The use of digital merchant payments varies from fewer than 20 % of adults in Nicaragua and El Salvador to more than 45 % in Argentina, Brazil, Costa Rica and Venezuela (Figure 2). The results also show inequalities, with higher use of digital merchant payments among men and the wealthy compared to women and the poor. 

Figure 2: Use of digital merchant payments varies across LAC region

Share of adults who made an online or in-store digital payment in 2020

The spread of digital financial services during the pandemic is welcome news. Digital financial systems help alleviate poverty by increasing the speed, security, and transparency of transactions.  They create space for development of sustainable financial products that can cater to low-income and vulnerable groups by removing barriers such as lack of identification, formal income, and geographical distance.

Of course, the rapid spread of digital financial services also increases the risks of fraud and abuse. Consumer protections—and effective product design—are vital as previously unbanked adults join the formal financial system for the first time. 

But the recent move toward digital payments may turn out to be temporary. Research finds that epidemics increase the likelihood of individuals transacting via the internet, mobile bank accounts, and ATMs—but these shifts tend to be short-term rather than persistent over time, and digital uptake tends to be highest among young, relatively wealthy earners. And our own survey shows that about 1 in 2 digital merchant payments users would rather transact in cash (Figure 3).

Figure 3: About half of new digital adopters want to return to cash

Share of adults who used a card, mobile phone, or the internet to make a payment in a store for the first time in 2020

It’s too early to make sweeping statements about how the pandemic has impacted digital financial services. For now, we only have data on Latin America and the Caribbean and Europe and Central Asia. We will publish in June the next Global Findex database, which will have a more extensive set of questions, and cover all developing regions. Plus see more detailed analysis from Argentina and Mexico in our upcoming blog post. Click here to see the new data and read our policy note.