Financial Access and the Special Role of Internet Connectivity in the Developing World


This essay will examine the accessibility of financial and banking services in both the developed and developing world, and the enabling role played by digital technologies such as the Internet, especially in less developed countries. First, a pre-Internet, bird’s-eye view of the diffusion of banking and financial services in more developed countries is reviewed to provide background. Second, important prerequisites for improving the destiny of the unbanked and under-banked in LDCs are enumerated. Third, the modern Internet as a leapfrog technology, with an expanding role as an essential platform for financial access in emerging markets, is explored in light of these prerequisites. And lastly, a conclusion briefly summarizes the ideas advanced in this paper.

Financial Access

Financial Services Pre-Internet in the Developed World

A detailed evolution of banking and financial services in the developed world is well beyond the scope of this paper. However, a brief sketch is useful to review for comparison with the situation of LDCs today and their path forward to greater financial inclusion. The history of most MDCs follow a similar arc. Using the US as an example, the early nation’s economy was dependent on agriculture, n
ot unlike many LDCs today. In the forthcoming Industrial Revolution, the US transformed itself from a farming economy into a major industrial power; manufacturing and cottage industries supplanted the agrarian sector. As the country matured into the later part of the 20th century, the service sector began to overtake manufacturing in dominance. Since the 1970s and the advent of the micro-computer, the Digital Age ushered in yet another new era for developed economies. Just as the Industrial Revolution radically altered the composition of the workforce, the Digital Age enabled an emergent, knowledge-based, and ever more inclusive and interconnected world economy [1,2,3].

The developed world did not require the Internet for the successful diffusion of banking and financial services. The Industrial Revolution included a build-out of fundamental physical infrastructure, promoting travel and access to physical bank branches. Perhaps even more importantly, as noted by De Soto, the US and other developed countries reformed their legal systems championing private property rights, eventually embracing the pioneers who were largely settling and improving Western lands extra- legally [4].

The US legal and banking regulatory systems co-evolved, creating a positive environment for capital formation and growing individual prosperity. Financial panics and crises of the late 19th and early 20th centuries were addressed with the creation of the Federal Reserve System. And the Great Depression in the US spawned federally backed deposit insurance to stabilize the banking system. Additionally, banking regulation such as the Glass-Steagall Act (now repealed), the retirement “safety net” called Social Security, as well as the SEC were formed as part of The New Deal in the 1930s [5].

In summary, developed countries progressed from agrarian economies to post-industrial service economies via the process of industrialization over a couple of centuries. Along with the technological progress, a favorable legal and regulatory environment emerged, protecting private property rights which, in turn, nurtured capital formation and prosperity. More recently, with the advent of the Internet, digitalization is bolstering a more knowledge-based economy, once again organically restructuring the composition of mature economies.

Prerequisites for Uplifting the Unbanked

In contrast, LDCs, until recently, have been largely “stuck in the past,” still heavily reliant on agrarian and subsistence living for large portions of their populations. In order to emerge from these anachronistic lifestyles, there are certain necessary preconditions. Not surprisingly, many of the prerequisites are similar to those needed for the adoption of digital currencies. The following list is not comprehensive, but highlights some of the more important factors [6]:

1. Population with meaningful surplus capital
2. Economically dynamic society (at least “awakening” to this state)
3. Positive private and public initiatives to improve the economic well- being of the lower classes
4. Educated population, i.e., both literate, and increasingly digitally literate
5. And last, but not least, reliable electrical and telecom infrastructure, i.e., growing access to the Internet, including economical mobile devices

Technology Leap-Frogging in Developing Countries

Recent advances in telecommunications and social media have provided new pathways of delivering Internet content, e-commerce, and mobile financial services, allowing parts of the formerly undeveloped world to leapfrog centuries-old MDC infrastructure and land squarely at the vanguard of the 21st century.

By the end of this decade, experts forecast that the vast majority of the planet’s population will possess Internet accessibility, adding another two billion participants. Smartphones connected to the Internet are the most likely means of providing points of access. Many parts of the developing world will simply skip fixed landline infrastructure as means of telecommunication and Internet access.

However, even the more prosperous LDCs face major challenges, with mobile device costs often being prohibitive and high fees charged by monopoly service providers, as well as embedded taxes being siphoned off by needy governments. Additionally, incumbent banking interests can obstruct the dispersion of new mobile payment options [7]. But the good news is, there are many positive trends to counteract these downsides. Being fundamentally a “species” of handheld computer, simple smartphones will continue to drop in cost because of Moore’s Law [8]. Also, key visionary technology leaders are raising awareness of the economic and social benefits Internet access can provide to the developing world.

Initiatives to reach out to the unbanked and under-banked in LDCs are being led by global tech luminaries, including Google, Microsoft, and Facebook. Google’s project Loon is aimed at expanding Internet access to even the globe’s most remote regions [9]. Zero-rating services are being widely offered, providing important digital content for free to those with limited resources [10]. Understanding the importance of Internet access to economic development, The Bill and Melinda Gates Foundation is championing a movement to increase Internet penetration in LDCs with the intention of uplifting the impoverished. Mark Zuckerberg of Facebook often reprises the mantra of the United Nations that “connectivity is a human right.” In response, Facebook created a non-profit,, with the declared purpose to make the Internet more affordable [11]. Social media platforms are becoming essential for the economies in some LDCs. For example, more than 10,000 businesses in Thailand power their businesses using Facebook. Growing millions of Chinese rely heavily on Internet services such as WeChat to interact digitally, and are rapidly embracing online marketplaces like Alibaba’s Tmall to conduct e-commerce [12]. Not only the private sector, but governments in some of the largest emerging markets recognize the importance of improving the situation of the financially deprived. UNCDF initiatives such as MM4P are addressing issues in some of the poorest LDCs, helping to increase access to micro- finance using mobile technology [13]. This past summer, the Indian government relaxed banking regulations, and now telecom carriers are licensed and authorized to provide mobile banking services, extending their reach to a massive low-income rural population [14].


As time unfolds and the Internet becomes ubiquitous in both developed and developing countries, financial services and banking will continue to become more streamlined and efficient. However, the greatest positive impact on living standards will certainly be felt in the LDCs. In many of these countries, private and public momentum is building, promoting the diffusion of Internet access. Digital currencies and mobile banking provide superior alternatives to the status quo of centralized systems, cutting costs to both consumers and merchants and further broadening financial inclusion. For MDCs, the Internet and its benefits represent a gradual evolution of a mature economic system that has a long history of providing widespread access to banking and financial services. For LDCs, the Internet and its accelerating diffusion provide a solid foundation for a brighter and more prosperous future.


aka also known as
LDC Less Developed Country
MDC More Developed Country
MM4P Mobile Money for the Poor
P2P Peer-to-Peer
SEC Securities and Exchange Commission
UNCDF United Nations Capital Development Fund
US United States of America


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