Developed and developing financial markets are more similar than you think. Here’s why

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This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Daniel J. Barker, Director for Research, Mastercard Center for Inclusive Growth & Carlos Monteverde, Manager, Product Management, Mastercard


  • As the economic divide grows between developed and developing markets, so do the opportunities for learning from one another.
  • While emerging markets still lag behind on financial inclusion, they are often in a position to jump ahead and offer more fit-for-purpose and cost-efficient solutions.
  • The COVID-19 crisis is an opportunity to reorient how we serve the financially underserved. The challenges for developed and developing countries are more similar than we think.

This is an era where globalization has been called into question and nationalism has roared back to centre stage in political theatre. But the COVID-19 pandemic has revealed one glaring area of global convergence: No matter where they are, workers and small businesses lack the safety net and financial tools that could support public health measures and lessen the blow of an economic shock.

Whether they live in sprawling, densely-populated cities in the developing world or the declining factory towns of the United States, the twin shocks of a health crisis and economic lockdown are impacting financially vulnerable households disproportionately.

COVID-19 presents an incredible threat to life and livelihoods, but this disruption offers an opportunity to rethink and rebuild our economic and financial systems. It could be a catalyst for the global community to break down the gap between developed and developing nationsand to learn about the most effective approaches to creating resilient communities and economies that work for all in every location.

Income volatility: a converging problem

Economic instability and vulnerability to shocks was a defining feature of the pre-COVID-19 economy for poor households across the world. In his recent Aspen Institute report “The Great Convergence,” financial inclusion expert Tim Ogden notes that income volatility in the US looks similar to what studies of financial diaries have found in South Africa, Bangladesh, Ghana, and many other countries. “It turns out that the lower half of the US labour market looks a lot like informal economies: uncertain hours, few benefits, limited tenure, and near zero mobility or wage gains.”

Percentage of people unable to cover an emergency cost Image: Analysis from the NYU Financial Access Initiative

It has been widely reported that 40% of Americans don’t have savings they would use to cover a $400 emergency expense. Analysis by Ogden’s colleagues at the NYU Financial Access Initiative demonstrated that this is a global phenomenon: Prior to COVID-19, more than 70% of the poorest households in countries as diverse as Uganda, Costa Rica and Bangladesh similarly did not have enough savings to cover an emergency. As Leora Klapper, a lead economist with the World Bank, noted last year, minority groups, women and the poor are at greater risk of financial emergencies than the rest of the population.

While emerging markets still lag behind on financial inclusion, they are often in a position to jump ahead and offer more fit-for-purpose and cost-efficient solutions – yet developed markets sometimes struggle with high fees for many basic services, including cheque cashing, overdrafts or remittances.

In the US, Black and Hispanic households have been disproportionately affected by the virus’ heath impacts, suffering higher rates of hospitalization and death. They are also much more likely to be essential workers, with low emergency savings and higher rates of being un- or underbanked. And once again, these impacts are unfortunately global in nature. Disproportionate impact on racial and ethnic minorities and people of colour has been reported in Brazil, France and the UK.

McKinsey and Company has also found that women across the globe are particularly vulnerable to COVID-19-related economic impacts because of historic inequality and a lack of financial and digital inclusion.

While the impacts appear universal, the differing ways that governments and the private sector are responding offer insights into how technology with a focus on the most vulnerable can help us tackle this crisis.

Digital financial inclusion

In response to the COVID-19 crisis, many developed countries have temporarily expanded and/or extended unemployment benefits and social safety nets, including the US and the European Union.

Governments in emerging markets have less fiscal flexibility, but some have been able to leverage technology to rapidly disburse support to households and businesses. The Colombian government provided digital financial transfers to nearly 3 million vulnerable households, 60% of them women-headed. Colombia highlights an important strength of these innovative models in developing countries: established digital financial solutions to solve for last mile connectivity in order to reach the most vulnerable populations as quickly as possible.

Prior to the crisis, countries such as Kenya and Ghana had already been leapfrogging more mature markets when it comes to digital financial inclusion.No consumer there, for example, would ever dream of writing a paper cheque. Meanwhile, in the US, there were an estimated 30 million to 35 million COVID-19 stimulus cheques that took longer to reach their intended recipients due to processing delays.

Accelerating the speed of digitization has been key in many markets to enabling those most at risk from COVID-19 to adhere to quarantines. In Chile, Belarus and Israel, they also swiftly developed programmes to issue pensions and other assistance digitally, providing older and financially vulnerable citizens with digital tools and training to ensure they could confidently access and pay for vital services safely from home.

Meanwhile, Safaricom, the parent company of the popular M-Pesa wallet, implemented a fee waiver in East Africa to reduce the physical exchange of cash. In March, Ghana’s central bank directed mobile money providers to waive fees on peer-to-peer transactions of GH₵100 (≈ USD$18), with restrictions on transactions to withdraw cash from mobile wallets.

While emerging markets still lag behind on financial inclusion, they are often in a position to jump ahead and offer more fit-for-purpose and cost-efficient solutions – yet developed markets sometimes struggle with high fees for many basic services, including cheque cashing, overdrafts or remittances.

There is, however, work to bring more people into the formal financial world by tackling economic disparities wherever they exist, including within Black communities. In the US, for example, Mastercard recently launched Mastercard Money Connect Solutions, which offers convenient and more affordable services to those who need it most, whether it’s helping people avoid high-cheque cashing fees, sending money to relatives, or offering instant or even early wage access to avoid payday lending.

A more inclusive financial future

The COVID-19 crisis is an opportunity to reorient how we serve the financially underserved. We have seen the challenges that both developed and developing countries experience are closer than we think.

We need to reimagine financial services to focus on systems and products that build resilience and enable social mobility and build on successes across the globe. For financial service providers, that means breaking down internal silos between geographically-focused teams and sharing lessons about product development across markets. Governments will need to think beyond their traditional benchmarks for comparison. Recently, the Aspen Institute, in partnership with the Mastercard Center for Inclusive Growth, launched a new forum to bridge these gaps between developed and developing countries.

As we move from crisis response to recovery, the mission is not merely to survive. People, no matter where they live, deserve financial security and opportunity, and by learning from these shared challenges, we can reshape how we approach digital financial services to create a more inclusive world where everyone can thrive.

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