Digital Payments Could Drive Financial Inclusion in Latin America

Digital payments are cutting cash reliance in Latin America, but the biggest barrier is no longer just access. It is trust, connectivity and whether rural users can safely stay in the system.

A new study reveals that digital payment users in Latin America and the Caribbean are significantly less likely to rely on cash, highlighting how financial digitalization could reshape everyday transactions in a region still marked by informality, inequality and uneven access to formal banking.

The study, titled Digital Payments, Cash Substitution and Sustainable Financial Inclusion in Latin America and the Caribbean, was published in Sustainability. Using 2021 Global Findex Survey microdata from 17,498 adults across 18 countries, the research found that digital payment use is associated with a 9.17 percentage point reduction in the probability of using cash.

Digital payments are cutting cash dependence

The study examines whether people who make or receive digital payments are less likely to use cash for everyday financial activity, including payments for services, remittances, salaries, government transfers, pensions and agricultural payments. The results show that digital payment users are less dependent on cash than non-users, even after accounting for gender, age, income, education, rural or urban location, internet access and country-level differences.

In Latin America and the Caribbean, cash remains deeply embedded in daily economic life. Despite growth in bank account ownership, mobile wallets, payment apps and instant payment systems, the region still faces high levels of informal work, uneven banking access and persistent gaps in digital infrastructure. These conditions make the shift from cash to digital finance slower and more uneven than in more digitized economies.

The research treats sustainable financial inclusion as an interpretive framework, rather than presenting digital payments as a panacea for financial inclusion. Lower cash reliance may indicate greater interaction with formal financial channels, but the study does not measure sustainable financial inclusion as a standalone outcome. Its core empirical result is narrower and more specific: people using digital payments are less likely to depend on cash.

The authors used a logit model and average marginal effects to estimate the relationship between digital payment adoption and cash use. They also ran counterfactual simulations to compare predicted cash use among digital payment users and non-users across income, age, gender, education, residence and internet access groups. Across these scenarios, digital payment adoption was consistently associated with lower cash use.

The study found that digital payments reduced predicted cash reliance across all income quintiles. The association was not limited to wealthier groups, a key point in a region where financial technology is often assumed to benefit mainly urban, higher-income users. Even among lower-income groups, people who used digital payments were less likely to rely on cash.

Gaps remain by age, education and connectivity

The research shows that digital payments are linked to lower cash use across the region, but structural divides remain. Older adults, people with lower levels of education and residents in rural areas continue to show higher baseline dependence on cash. These gaps suggest that digital adoption is spreading, but not evenly enough to erase deeper barriers tied to skills, trust, infrastructure and access.

Education emerged as one of the clearest dividing lines. People with primary or secondary education were more likely to use cash than people with university education. The study links this pattern to gaps in financial and digital literacy, as people with less education may face greater difficulty using formal financial tools, navigating digital interfaces or trusting electronic transactions.

Age also shaped payment behavior. Cash reliance increased with age, although the relationship was not strictly linear. Digital payment use still reduced cash dependence across age groups, including among older users. This finding suggests that the cashless transition is not only a generational shift. Usability, trust, access and support can influence adoption among older adults as well.

Gender differences were smaller than many other divides. Women were slightly less likely than men to use cash after other factors were controlled. The simulations also showed that digital payments lowered cash use among both men and women by a similar margin. This points to a relatively broad association between digital payment use and cash substitution across gender groups.

Rural residents were more likely to rely on cash than urban residents, reflecting weaker financial infrastructure, lower merchant acceptance and gaps in connectivity. Notably, digital payment use was associated with lower cash reliance in both rural and urban areas. The result suggests that digital finance can support wider access, but only if infrastructure, affordability and trust improve beyond major cities.

Internet access was also a major factor. The study found that people with internet access were less likely to use cash, reinforcing the role of connectivity in financial digitalization. Yet the association between digital payments and lower cash use appeared even among people without internet access, suggesting that low-data, offline or locally supported payment systems could matter for inclusion in less-connected communities.

Regional differences were also visible. Countries with stronger digital payment ecosystems, including Brazil, Chile, Argentina, Uruguay, Costa Rica and Bolivia, showed higher digital payment adoption and lower cash reliance. Countries with lower levels of digitization, including Nicaragua, Guatemala, El Salvador and Honduras, showed greater dependence on cash. The negative link between digital payments and cash use remained across high, medium and low digitalization country groups.

Why it matters for policy

If digital payments are linked to lower cash reliance, then payment infrastructure, digital trust and consumer protection are vital to building more inclusive financial systems.

• Payment interoperability: Systems that allow users, banks, fintech firms and merchants to transact across platforms can reduce friction and expand digital payment use. Brazil's PIX and Mexico's CoDi are cited as regional examples of instant payment infrastructure, though adoption has varied depending on trust, literacy, informality and user behavior.
• Financial education: Older adults, rural residents and people with lower education levels remain more dependent on cash. Targeted digital and financial literacy programs could help these groups use payment tools safely and confidently. The study suggests that practical usability and institutional trust may matter as much as basic access.
• Consumer protection: The shift away from cash can expose users to fraud, privacy risks, cybersecurity threats and operational disruptions. In a region where low-income households may be least able to absorb digital financial losses, regulators must ensure transparent fees, fraud redress, data protection and secure payment systems.

Additionally, the study links digital payments to the social and institutional dimensions of sustainability, particularly inclusive growth, reduced inequalities and stronger institutions. A less cash-dependent economy can improve transaction efficiency, expand formal financial participation and strengthen transparency, but only if vulnerable groups are not left behind.