Equities
Digitalisation for the masses – How technology is transforming emerging market economies
5 min read 18 Nov 25
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Physical infrastructure has long been seen as the cornerstone of emerging markets’ (EM) development. However, digitalisation of a vast, informal economy is emerging as a powerful engine. Small and medium-sized enterprises, once invisible to the state and capital markets, are being transformed by access to payments, logistics, and credit systems. Nina Petry, Senior Analyst in the EM Equities team, reveals how this technological shift is enabling EMs to build a new productivity base and leapfrog their developed counterparts.
Informality has long been a drag on productivity in Asian and Emerging Markets. Informal businesses – those not formally registered or regulated – tend to be small and undercapitalised, producing only one-quarter of the output per worker of the average formal business.1
A large informal sector is a misallocation of labour and capital that traps economies in a low-productivity, low-growth state. But there is a quiet revolution underway in these regions, as rapid digitalisation is transforming the business landscape.
From instant payment systems like Brazil’s Pix, created by the country’s central bank, and India’s Unified Payments Interface (UPI), which moves money between bank accounts via mobile devices, to SME digitalisation in Indonesia, technology is lowering barriers to formalisation and democratising access to credit and infrastructure.
“…technology is lowering barriers to formalisation and democratising access to credit and infrastructure”.
Not only do digital payments correlate with rising GDP per capita and lower informal employment, they also extend access to credit to large unbanked populations, promoting financial inclusion.2
From Delhi to São Paulo, SMEs using digital tools are more likely to report revenue growth, and they tend to generate higher revenue per employee.3 Governments see this, and they are responding in kind: since launching in 2016, India’s UPI has come to process 75% of digital retail transactions, while Brazil’s Pix reached 168 million daily users within three years, a significant share of the country's population of 220 million.4
What drives digital adoption in EM?
While many developed markets rely on card-based systems layered on legacy banking infrastructure, some EMs have leapfrogged credit cards altogether, going straight from cash to online, mobile and digital payments – this is how Kazakhstan’s Kaspi, and China’s Alipay and WeChat Pay revolutionised payments in their respective countries.
Other EMs had a legacy banking infrastructure in operation that nevertheless failed to address the unmet needs of the underbanked population and informal commercial landscape. The combination of high mobile penetration and low access to credit opened the way to mobile-first and digital solutions in EM.
“The combination of high mobile penetration and low access to credit opened the way to mobile-first and digital solutions in EM”.
Digitalisation of SMEs generates verifiable cash‑flow data from businesses that lived in the shadows, reducing information asymmetry and unlocking lower-cost financing. The formalisation of these unseen businesses also has meaningful tax implications for EM governments as informal cash suddenly becomes visible. For governments that apply the principle ‘what you can count, you can tax’, this is a positive development.
What does this mean for investors?
The earnest adoption of digital tools in developing economies has ramifications beyond payments and credit. Digital transactions touch a widening array of daily activities from groceries to media consumption to healthcare. This trend fundamentally alters the economics of some industries, impacting the nature of demand and the logistics of production.
Crucially, systems like UPI and Pix are open and interoperable, enabling platforms of all sorts to layer credit, invoicing, and merchant services on their infrastructure. Digital payments apps in Brazil are already integrating the Pix payment infrastructure with AI agents and messaging apps to minimise friction for consumer transactions.
Formalising EM economies could lead to more transparency, lower operating costs, more accurate credit scoring, and perhaps even a broader tax base. Previously obscure transactions become data, data becomes credit, and credit feeds into productivity.
The winners of this evolution could show up in sectors as diverse as financial services, telecommunications, retail and logistics. For instance, digital SME transactions generate data that enables more accurate credit scoring, allowing banks to expand lending portfolios with lower risk, while rising adoption of mobile solutions increases data consumption, creating new monetisation opportunities for telecom providers.
For investors, EM growth isn’t just about factories and highways – it’s also in digitalisation and productivity improvements that may yet turn the shadow economy into bankable, scalable enterprises.
1 World Bank, “Global Economic Prospects: Darkening Skies”, (Open Knowledge Repository ), January 2019.
2 Bank for International Settlements, “Digital payments, informality and economic growth”, (Bank for International Settlements ), July 2024.
3 Center for Financial Inclusion, “Small Firms, Big Impact: Digitization, Financial Services, and Climate Resilience in Five Emerging Markets”, (Home - Center for Financial Inclusion ), April 2025.
4 Economic Times, ‘UPI to corner 90% of retail digital payments in India by 2026-27: PwC’, (Government News | Latest news on eGovernance, Digital India, Smart Cities | ET Government ), May 2023.
The value of investments will fluctuate, which will cause prices to fall as well as rise and investors may not get back the original amount they invested. Past performance is not a guide to future performance. The views expressed in this document should not be taken as a recommendation, advice or forecast.
