Financial and Monetary Systems

People are escaping poverty with the help of digital finance. How should we measure that?

A schoolboy shows his mobile phone to a rickshaw puller takign him and other students to school on a cold winter morning in the old quarters of Delhi January 30, 2014.

Image: REUTERS/Anindito Mukherjee

Jake Hess
Leora Klapper
Lead Economist, World Bank
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The Digital Economy

Today, a mobile phone can be used by women in Hyderabad to pay their gas bill, by young people in Hanoi to quickly send money to their parents living in a rural village, and by farmers in Kampala to receive payments for the sale of coffee beans.

Formal financial services, including those accessed through a phone, are connecting people to economic opportunities and helping them escape poverty. Without a savings account, it can be difficult for poor people to put away money for future investments in education or business. Without insurance, a crop failure can push farmers and their families into destitution.

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Many of the world's 2 billion adults who lack formal financial services can't get a bank account because they live far away from traditional bank branches. For the unbanked, paying routine bills or collecting salaries in cash can require lengthy and expensive trips to a city. Digital financial services shrink the distance between people and the services they need. These are some of the reasons why groups like the G20 believe measuring access to digital financial services is critical for global development.

What's the best way to gauge usage of digital financial services? There is no single metric that captures a complete view. People commonly look at account dormancy: If you have an account but don't use it for a year, your account is dormant. The advantage of this measurement – its simplicity – is also one of its flaws. But in focusing on what people do not do with their accounts, the traditional dormancy measurement reveals little about why people have or need financial services.

The World Bank's Global Findex database - which tracks how adults worldwide use financial services such as savings, credit, and payments – lets you measure account usage in scores of different ways. Figure 1, below, features a nuanced definition of active accounts – those which are used to make or receive digital payments in the past year. The numbers show that most account owners in major emerging economies use their accounts to manage money, receive wage payments or government transfers, or wire funds to relatives. This includes nearly 90% of account owners in each of the BRICS with the exception of India, where most are digitally dormant.

Figure 1: High account activity in major emerging economies
Adults making or receiving digital payments through an account at a financial institution, 2014

Image: Global Findex database;

Note: The height of the bar is the total percentage of adults with an account.

Much of the difference in account usage rates reflects disparities in debit card access. In economies where debit card ownership is widespread, and shops are equipped with the technology needed to accept them, account activity tends to be higher. More than half of account owners use debit cards in Brazil, the Russian Federation, and South Africa, against just a fifth of their counterparts in India. A study of digital payments in India by USAID found that active account owners were more than twice as likely as inactive account owners to be aware of debit cards – and that poor infrastructure and low understanding blocked higher usage.

Governments and businesses have an outsized role in shaping digital activity and dormancy. Nearly three in 10 adults in South Africa receive public social benefit payments into an account, and in the Russian Federation, a quarter of adults collect private sector wages via direct deposit. Far fewer adults in India receive such electronic transfers – and that might be a reason why digital dormancy is more widespread there.

Figure 2: Account usage shaped by digital payroll and government payments
Adults who receive wages, payments for agricultural goods, or government social benefits into an account, 2014

Image: Global Findex database;

Note: The height of the bar is the total percentage of adults with an account.

The spread of mobile phones and the internet has spawned a range of new digital payment products beyond traditional accounts. Since 2010, the share of adults in the developing world accessing the internet through mobile devices nearly tripled, hitting 40%. So far, rich countries have reaped the most financial advantages. In high-income OECD economies, 57% of adults make payments using a mobile phone or the internet – via an account or some other method. In our set of major emerging economies that number peaks at 25% and is often considerably lower (figure 3).

Figure 3: Digital technology increasingly used for payments
Adults who make payments via a mobile phone or the internet, 2014

Image: Global Findex database;

By this measure, digital dormancy looks high. Part of the reason is that huge swathes of the developing world, particularly the poor, still lack access to basic digital technology. Fresh Gallup data estimates that in China, 68% of the rich and 38% of the poor have internet access. Around 84% of richer adults in South Africa have a mobile phone, versus only 63% of poorer adults. In both countries, the rich are more than twice as likely as the poor to make a payment online or using a mobile phone. Gender inequality also is rampant: In Turkey, women are half as likely as men to make such payments.

Regional disparities in financial access persist even though more people are getting accounts. About 54% of adults in the emerging world have an account, up from 41% in 2011 (see the map below). Just about everyone has an account in the richest countries, but among emerging the region the ranges from 14% in the Middle East to 69% in East Asia and the Pacific. Most of these accounts are at banks or other traditional financial institutions. The only exception is Sub-Saharan Africa, where 12% use a mobile money account.

Image: Global Findex database;
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