Digital finance haunted by traditional inequalities in Global South

While digital finance seems to be the way of the future, access to mobile phones may amplify economic disparities among women in the Global South

The study, published in Oxford Open Economics, illustrates that although digital finance services are beige marketed as a vehicle to lower inequality and bridge the finance gap, the opposite may in fact be happening.

Improving access to money has previously been labelled as a gateway to reducing income inequalities, and the COVID-19 pandemic has only increased this digital timeline, with most shops around the globe moving to contactless digital payments and not wanting to accept cash.

The accessibility and distribution of digital financial services

The potential for digital finance services to reach all socioeconomic groups however is unlikely, this study addresses this topic by exploring how physical infrastructure and mobile phone network quality, as well as individual characteristics like education, affect the ability to access and use such services.

Using the Demographic and Health Surveys and several geocoded databases in Nepal, the Philippines, Senegal, and Tanzania, the paper explores the distribution of digital finance use among women and its enabling infrastructure, including mobile phone towers, compared to traditional finance.

The results indicated that the same inequalities behind traditional finance may have serious consequences for access to digital financial services.

The results suggested that living in urban centres were associated with both traditional finance and digital use such as in the Philippines, Senegal, and Tanzania.

The team revealed that women living in urban areas are 3.4-15.7% more likely to use traditional finance and 0.4-13% more likely to use digital financial services.

In all countries studied, inequalities in wealth and education are also carried through in mobile banking use even more strongly than in traditional finance. In all countries, higher wealth is strongly associated with a higher likelihood of mobile phone use.

Those in the richest wealth quintile were seen to be 9.3-27.2% more likely to own a mobile phone. The charges associated with mobile phones are extensive even when ruling out the initial price of when there are still broadband charges and phone plans.

Mobile banking remains highly unequal

This analysis finds that mobile banking use is still highly unequal and that relevant physical infrastructure like mobile phone towers follows the same patterns as traditional financial institutions. Following these results, it is apparent that mobile banking and digital finance may still leave large inequalities in access to financial services – particularly to women in Global South countries.

“Digital technologies hold so much promise for improving the way we access financial services,” said the author, Laura Caron.

“However, we must make sure there is the proper infrastructure in place for this to function. We also must support digital literacy and work to make digital technologies affordable if we hope to reach those who have been excluded from traditional finance. New technologies alone won’t solve the problem of inequality if we don’t make sure people have access to them.”

Read the full study here.