How Do Instant Interoperable Payment Systems Transform Modern Economies?
The digital transformation of economies presents a powerful opportunity to tackle some of the most persistent challenges facing households and businesses today. Despite significant advances, nearly one in three individuals globally still lack access to basic financial accounts as of 2021 (Demirgüç-Kunt et al., 2022). Additionally, 34% of the global population has never made or received a digital payment — partly reflecting the traditional financial system’s limitations in reaching underserved communities (Demirgüç-Kunt et al., 2022). Small businesses, meanwhile, continue to grapple with credit constraints, hindering their ability to engage in entrepreneurial activities and contribute to economic growth.
As a response to these challenges, the development of a robust digital public infrastructure stands out as a critical priority for forward-thinking governments. By laying the groundwork for digital financial markets to operate on, instant interoperable payment systems (IIPSs) hold significant potential to leapfrog economies, foster financial inclusion, create innovative and competitive financial markets, and drive sustainable economic growth while including marginalized populations. In particular, IIPSs can offer an appealing alternative to cash by reducing the frictions associated with digital transactions and enabling consumers to use their accounts for a variety of financial activities (Razi et al., 2022). Closed-loop mobile money systems have achieved significant success in driving peer-to-peer (P2P) transfers in emerging markets, but they often struggle to promote other use cases such as merchant or bill payments, especially in fragmented markets with multiple providers (Suri, 2017). Synthesizing recent evidence on IIPSs as digital public infrastructure, this research brief takes a closer look at their potential to address the limitations of existing digital payment systems and enhance economic outcomes for consumers and businesses.