Advancing Economic Freedom for the Poor

February 10, 2015

Electronic Payments and the Inclusive Society
Yuwa Hedrick-Wong

Electronic payments encompass a wide range of products and services, of which the best known are payment cards, and increasingly the mobile phone as a payment device. The fact is electronic payments are fast evolving, riding on a cluster of dynamic and mutually reinforcing technologies, with the result that new products and services are being introduced continuously. And yet electronic payments are mostly taken for granted and the perception persists that they are merely conveniences for those who can afford them.

A rapidly growing body of evidence drawn from both the developed economies and emerging markets suggests otherwise. The efficiency of electronic payments has shown to have powerful effects in stimulating overall economic growth, consumption and even trade.[1]  More importantly, the technologies that power electronic payments are also proving to be cost-effective in providing financial services to underserved and neglected communities.[2] In other words, electronic payments could help break down barriers that marginalize and exclude the poor, facilitating their access to one of the most important networks, the financial network; that is critical to economic growth, business innovations, and entrepreneurial dynamism.

To have equal economic opportunities and full participation in society requires that we are connected to all the essential networks that power the modern economy. As Ricardo Hausmann points out, we all need access to networks that deliver water and transmit electricity, as well as to urban transportation network, and to networks that provide education and health care services, etc.  Lack of access to any of these networks cripples our ability to function on a day-today basis, severely curtailing our productivity and well being.[3] While it has been well established that access to networks of water, electricity, education and health constitutes the basic rights of a citizen, the critical importance of access to the financial network is only just beginning to be understood and recognized.

The fact of the matter is that lack of access to the financial network is debilitating for small businesses and indigenous entrepreneurs that account for the lion’s share of business establishments, employment, and household income in virtually all emerging markets. Without access to the financial network, the poor are without financial identity, small businesses cannot expand, entrepreneurs are starved of startup capital, and households are without credit history and therefore financial credibility. These conditions trap the poor in poverty.

However, innovative electronic payment products and services are starting to open up access to the financial network for the poor. New and innovative payments experiments and services constantly are being introduced in different parts of the world to enable the previously excluded to becoming included, often designed to meet specific local challenges and needs of the very poor and the marginalized. No doubt many will fail, but some will succeed and proliferate. Seen in this light, electronic payments are much more than what they are usually taken to be. Electronic payments and the technologies that power them could set in motion a self-organizing process of social change such that over time the very structure of the economy is itself can be transformed from exclusion to inclusion.

The evolution of a society is intimately intertwined with the evolution of its technologies, it is virtually impossible to understand the one without the other. At a deeply profound level, the economy is an expression of the sum of its technologies.[4] That is why it is hard to imagine the Enlightenment as Europe emerged from the Dark Ages without Johann Gutenberg’s printing press, or comprehend the intensifying global trade in the late 19th century without railways and steam ships. And no future historian could describe how we communicate and socialize today without making reference to the internet. Similarly, it is impossible to envision an inclusive society without efficient and ubiquitous electronic payment products and services that enable equal access for all to the all important financial network.



[1] Iftakhar, H., T. De Renzis, and H. Schmeidel. “Retail payments and economic growth”, Bank of Finland Discussion Paper, No. 19/2012.
[2] Yeung, L.H., S. Shamsuddin, and J.P. Thompson. “The technology to advance equal financial opportunity”, MIT Community Strategy Lab, July 2014.
[3] Hausmann, R. “The economics of inclusion”, Project Syndicate, November 7, 2014.
[4] Arthur, B. 2009. The Nature of Technology: What It Is and How It Evolves. New York: The Free Press.

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