Digital wallets significantly boost consumer welfare in Peru, BIS study finds
A new Bank for International Settlements (BIS) working paper finds that digital wallets like Yape and Plin have significantly increased consumer welfare in Peru. The study identifies lower fees, 24/7 immediate payments, and QR code functionality as key drivers of their widespread adoption.
Unpacking Peru's digital wallet boom
Digital wallets such as Yape and Plin have achieved widespread adoption in Peru, enabling instant payments via QR codes and mobile numbers.
A BIS working paper, using market share data from January 2019 to April 2024, identifies several key drivers for this success.
These include lower fees, 24/7 immediate payment availability, QR code payment options, and interoperability with point-of-sale (POS) terminals.
Simulations show that removing 24/7 immediate transfers would reduce digital wallet usage by 15.75 percentage points, discontinuing POS payments by 26.01 percentage points, and eliminating QR code functionality by 4.45 percentage points.
The study highlights a significant shift in consumer preferences, with cash usage declining from 40 percent of transactions in January 2019 to 18 percent in April 2024, while digital wallets surged to 50 percent in the same period.
Beyond market share: Consumer benefits
The paper's second key contribution quantifies the consumer surplus gains from digital wallet adoption.
Findings reveal a significant and steady increase in consumer welfare per transaction among banked individuals, rising from a modest 0.5 percent in January 2019 to a substantial 68 percent by April 2024. This upward trend is attributed to the broader adoption and usage of digital wallets, driven by new functionalities like POS terminal payments and growing network effects.
The authors emphasize that digital payments are instrumental in promoting financial inclusion, stimulating economic growth, and curbing poverty.
Peru has seen a rapid expansion in retail payments, increasing from 25 per capita in 2018 to 99 in 2022, marking the largest increase in Latin America.
Beyond Peru: Lessons for innovation
This study provides robust empirical evidence on the drivers of digital payment adoption and their welfare effects, offering valuable insights for policymakers.
While focused on Peru, its findings on feature-driven demand and consumer surplus are highly transferable to other emerging markets seeking to boost financial inclusion.
Central banks aiming to foster digital innovation should prioritize user-centric design, interoperability, and low-cost access to maximize societal benefits.