How Central Bank Payment Systems Are Bringing Millions Into the Formal Economy

Several Latin American countries have leapfrogged directly into instant, low-cost digital payment systems backed by their central banks, giving millions of previously unbanked residents access to modern financial infrastructure without ever needing a traditional bank account.

Several Latin American central banks have launched free, instant digital payment systems that let residents send and receive money directly between bank accounts using just a phone number or simple identifier, adoption of which has grown extremely fast and brought millions of previously unbanked or underbanked residents into the formal financial system for the first time.

Unlike private payment apps that generally charge fees or restrict certain transaction types, these central bank-backed systems have been designed explicitly as public infrastructure, free for consumers to use and open to any bank or licensed financial institution to connect to, an approach credited with driving the unusually rapid adoption rates observed.

Small businesses have been early, enthusiastic adopters

Small and informal businesses, which previously relied heavily on cash for transactions due to the fees and friction associated with card payments, have adopted these instant payment systems at a particularly high rate, drawn by the combination of zero transaction fees and immediate settlement of funds.

“A free, instant public payment rail turned out to be exactly what a huge cash-based informal economy needed to finally go digital.”

With adoption continuing to climb and several additional countries in the region developing similar systems modeled on the early leaders’ success, central bank-backed instant payments appear likely to become the default financial infrastructure across a growing share of the region, rather than a niche alternative to traditional banking.