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by Karen Abrams, MBA, Ed.D Candidate, AA
According to a May 2022 IDB report, digital payments are a key driver of financial inclusion and business growth in Latin America and the Caribbean. Digital payments allow people to transact business safely and securely without having to visit a bank branch or use cash. This is particularly important for small businesses (i.e., micro-, small and medium-sized enterprises), which can now take advantage of “the internet of money” through digital wallets on smartphones to get paid more easily than ever before.
The IDB report indicated that, Micro-, small and medium- sized enterprises (MSMEs) greatly benefit from the use of digital payments as it allows them to attract more customers and bring their business online, creating opportunities to sell beyond their immediate geography.
MSMEs are critical for economic growth. In fact, the World Bank estimates that small businesses contribute to about 60 percent of private sector employment and generate 40 percent of gross domestic product (GDP) globally. In the Caribbean, MSMEs account for between 50 and 80 percent of total private sector employment in most countries.
The IDB report finds that when people have access to digital payments, these act as a gateway to other financial services, like credit and insurance. Examples include PayPal’s partnership with M-Pesa in Kenya and Safaricom’s launch of M-Shwari in Tanzania—both mobile money platforms that allow customers to use their phones for more than just sending and receiving money. These partnerships give users access to savings accounts, loans and other financial services through their mobile devices.
The IDB report asserts that digital payments also allow governments to disburse resources to more of their unbanked populations than they would using cash. By leveraging digital payments, governments can reduce the costs of providing cash subsidies, increase the efficiency and accuracy of government programs, and reduce corruption by reducing the need for intermediaries or middlemen in government transactions. For example, if a country uses digital payment methods (e.g., mobile phones), then every household has access and can participate equally in economic activity.
The report indicates that digital payments level the playing field between large and small merchants. Smaller merchants can compete with larger merchants. The vast majority of Caribbean businesses are small, and many have a hard time competing with the major retailers in their local areas. However, with digital payments, these businesses will be able to sell their products on websites and social media channels as well—opening up a new revenue stream that wasn’t possible before.
In summary, digital payments are an important driver of economic growth and increased financial inclusion. These benefits will bring about a more inclusive society for the Caribbean’s population and help create a strong foundation for future business growth.