There is a revolution underway in financial services. Banks, loans, and other formal financial tools have almost always been designed for the middle class and above.

But today, digital technology unleashes an unprecedented opportunity to extend the benefits of formal finance to everyone, including people with lower incomes and limited assets.

And who is leading the world in seizing that opportunity? Africa.

Our continent is home to the largest mobile money provider in the world, M-Pesa. There are 271 mobile money services in the world today, and more than half of them are found in the sub-Saharan region. By 2020, the continent’s mobile money market is expected to top $14 billion.

The benefits of this revolution ripple far and wide, beginning with customers. People without access to formal financial services lead quite complex financial lives, with multiple sources of income and intricate networks for borrowing and lending.

But all of this is done in cash, which is quite expensive to use. Informal couriers and lenders charge exorbitant amounts, and something as simple as paying a bill can mean travelling for miles and waiting in line for hours. It’s almost like living every day under a tax — the “poverty tax.”

This “tax” is greatly reduced when people are able to manage their assets with a formal service, such as a digital wallet. They can make payments, build savings, and direct money for specific purposes much more easily. A recent study in Malawi illustrates how much impact that can have.

There, a group of rural farmers used digital services to save money throughout the planting and harvesting seasons. As a result, they cultivated 7 per cent more land than they had before, and they increased their crop output by 15 per cent.

The simple ability to save money in an account, rather than in a jar or under a mattress, allowed them to be both more productive and more profitable. The shift from cash to digital can also benefit providers of financial services. For the first time, they have a sustainable and profitable way of banking the unbanked.

GSMA — an industry organisation for mobile network operators — estimates that 80 per cent of the population in sub-Saharan Africa will have mobile access in the next five years. Using mobile signals, providers can therefore bring digital financial services to millions of people that brick-and-mortar services simply could never reach.

Digital also cuts the cost of transactions by as much as 90 per cent, allowing providers to charge extremely low fees. With millions of customers making daily transactions, these small fees can add up to a sizeable profit.

If this sounds simple, it doesn’t mean that success is assured or even easy. It takes hard work and collaboration across the public and private sectors. Overall, both sectors must remain vigilant about making digital financial services useful and easy for people who have only ever known cash.

For one, this means keeping transaction fees low. Kenyan and Ugandan authorities levy a 10 per cent excise duty on mobile money transfer services — an expense that is inevitably passed on to the consumer, who can ill afford to pay it.

To avoid deterring the consumers, governments should collaborate with industry stakeholders when setting taxes and other regulations for digital financial services.

Interoperable services

Another crucial way of appealing to customers is by making digital financial services interoperable with one another. That is, users of one product can transact with users of any other product.

This is good not only for customers, who can send and receive digital money as freely as cash, but also for providers, who can share in the costs and compete on a level playing field. Tanzania, Rwanda, and Madagascar each have fully interoperable mobile money markets, and digital financial services providers in other countries should follow their lead.

It would be ideal, in fact, for interoperability to extend to banks, so that all financial providers are accessible in one seamless system, with utterly frictionless transactions. When we have achieved that, we will have achieved more than simply creating just one more channel for circulating money. We will have created a new, digital economy.

We have every reason to be optimistic. Digital financial services are flourishing in many African markets. We are living proof that the unbanked and previously out of reach can be full and active members of the formal economy.

And as time goes on, we will see that when you include everyone in the same economy, with the same protections and opportunities, everyone benefits.

Dr Ayo Ajayi is director of the Bill & Melinda Gates Foundation’s Africa team. [email protected] Twitter: @DrAAjayi