NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Monday, January 9, 2017

In the aftermath of demonetisation, millions of Indians have switched to digital modes of payment for their daily transactions. To fuel this momentum, the Union government has announced a slew of incentives further encouraging citizens to go cashless.

Shifting towards a digital payments ecosystem could generate several potential benefits: for citizens, it could reduce transaction costs and increase access to critical financial services; for governments, it could reduce leakages and improve public service delivery. While there is some evidence to support these theories, capturing these benefits in reality is not straightforward and will require a systematic, evidence-driven approach.

Kenya’s M-Pesa, a mobile money service which allows users with or without bank accounts to transfer and make payments through a basic mobile phone, is often heralded as the exemplary digital financial inclusion success story. Since its launch in 2007, M-Pesa has become an integral part of Kenya’s economy: M-Pesa transactions account for 20% of gross domestic product (GDP) and it is used ubiquitously (by at least one individual in 96% of Kenyan households and by 75% of the unbanked population).