Leveraging Digital Payments to Address the Global Informal Economy

Informal employment as a share of total employment, by region.

Scale, and who is involved. Informal employment is a structural feature of most labor markets. It ranges from roughly 86 per cent of employment in Africa and 68 per cent in Asia and the Pacific to about 40 per cent in the Americas and 25 per cent in Europe and Central Asia.² Close to half of informal workers are self-employed workers. The most visible informal occupations are ordinary livelihoods: domestic workers (who total more than 76 million worldwide and most of whom are women), home-based workers, street and market vendors, waste pickers, smallholder farmers, and a growing number of platform (gig economy) and seasonal workers. Women are over-represented in the most precarious of these segments.

The digital payments link is real, modest, and conditional. The strongest independent evidence, a study of 101 economies from 2014 to 2019, found that a one-point increase in digital payment use is associated with a 0.10-point increase in the growth of GDP per capita and a 0.06-point fall in the informal employment share over two years. This is an association controlled for endogeneity.³ The widespread adoption of digital payments could thus motivate the formalization of smaller firms.⁴ However, access is not the same as use, inclusion, or formalization. The World Bank’s Global Findex 2025 records account ownership at 79 per cent of adults, yet 1.3 billion adults remain unbanked, measured financial health has not improved, and many account-holders transact little.⁵ CGAP is blunter still: the evidence that moving payments into accounts produces meaningful financial inclusion remains thin, and most recipients withdraw their money immediately rather than save or transact.⁶ Access alone is not enough.

What conditions the outcome. Three factors separate digitization that helps, from digitization that does little. The first is customer choice and interoperability: CGAP’s analysis of newer government-payment systems finds that the decisive difference is giving people genuine choice over how they receive and use funds, and that routing everyone through a single provider and prescribed cash-out points delivers little inclusion benefit.⁷ The second is consumer protection and product design. The evidence identifies that the binding barriers are documentation, fees, distance, and low confidence, and outcomes improve when fee transparency is required and products are built around users. The third is privacy and proportionality. Digitization generates data, and rights-respecting design collects the minimum necessary. Coercive digitization or the active discouragement of cash can exclude the poorest, the undocumented, and the digitally disconnected, and can erode privacy; cash remains an important fallback and, for many, the most inclusive instrument. Claims that suppressing cash yields large economic gains should be read with care, as the most-cited such estimates come from payments-industry-sponsored research.⁸

Formalization is an internationally agreed objective, but the agreed manner of achieving it is specific. Sustainable Development Goal 8.3 and ILO Recommendation 204, the first international labor standard on the informal economy, call for facilitating the transition to formality while creating, preserving and improving decent jobs and livelihoods, and while preventing the informalization of formal jobs. Recommendation 204 recognizes that most people are in the informal economy not by choice but for want of opportunity.⁹

“The economic approaches that dominate debates about formalization do not pay sufficient attention to how unequal distributions of economic and political power – locally and globally – are both a cause and a consequence of informality.”

Source: Allison Corkery and Marlese von Broembsen, A Rights-based Approach to Formalization: Transformative Change through Collective Bargaining (opens in a new tab), WIEGO Working Paper No. 50 (2026), p. 10.

The relevant human-rights backdrop is the right to social security, the right to work and to just conditions of work, and the right to privacy, the last of which operates as a constraint on data-heavy approaches to formalization, together with the principle of non-discrimination.¹⁰ Financial inclusion is an enabler of these rights, not an end in itself.

For the Interledger Foundation, we believe payments intervention should be judged by whether it expands people’s access, choice, resilience, and protection on rights-respecting terms, rather than by whether it maximizes their visibility to the authorities or advances any particular provider or rail.

Two consequences follow. The first is that informality and evasion are overlapping problems, and the overlap is wide rather than marginal. Much informal work is knowingly non-compliant. Vendors trade without licenses they know they lack, often because license quotas are capped far below the number of people who need one, or because registration requires an address, documents, or fees they cannot produce. Non-compliance under those conditions is a question of access and administrative capacity, and enforcement directed at it leaves the underlying constraint untouched.

The second is that intent is rarely observable, so any policy claiming to sort people by it will in practice sort them by proxies such as sector, visibility, and transaction size. Those proxies fall hardest on the smallest operators, which inverts the stated purpose.

A workable line can be drawn on what is visible. Direct enforcement where liabilities are material and where conduct harms others, including employers who misclassify workers or withhold contributions they have already collected. Direct inclusion and protection where liabilities are negligible and the binding constraint is access rather than concealment. The same digital tool serves either purpose, and which purpose it serves is a policy choice that should be stated rather than left to the default settings of whoever builds the rail.

The Interledger Foundation maintains neutral, open, digital public infrastructure that serves the public interest. Interledger technology sits beneath inclusion and social protection programs, and adoption therefore is not itself the intervention. Three components are relevant:

• The Interledger Protocol (ILP) is an open protocol for routing packets of value across different networks and ledgers, including banks, e-money, mobile money, and account-to-account systems. Intermediaries known as connectors forward packets and settle at the edges, so value can move across currencies and systems without every participant joining a single network. For the informal economy agenda, this means interoperability across rails and across borders, reduced provider lock-in, and support for very low-value and high-frequency payments that fixed fees would otherwise make uneconomical.
• Open Payments is an open API standard defining how financial service providers expose payment functions, such as quoting, authorization and incoming and outgoing payments, in a consistent, consent-based way, together with human-readable wallet addresses that resolve to a payee’s endpoint. Standardized authorization, spending limits and revocable mandates make it easier to implement tiered know-your-customer requirements and consumer protections, and to minimize the personal data collected. A single specification lowers switching costs and reduces the exclusion of small markets.
• Rafiki is an open source reference implementation of ILP and Open Payments that bundles the core services a wallet or payment provider needs. Public bodies and financial service providers can stand up interoperable services and run supervised pilots quickly, and because the code is open, regulators, auditors, worker organizations, and security researchers can inspect what it does. Rafiki is recognized as a digital public good by the Digital Public Goods Alliance, which reviews open source projects against the DPG Standard for openness, documentation, privacy, and do-no-harm design. See our entry in the Digital Public Goods Registry (opens in a new tab).

Mapped against the evidence, this infrastructure enables the factors that make digitization work: customer choice and interoperability, which CGAP identifies as decisive; lower cost and reduced last-mile and cross-border friction for government payments and remittances; data minimization and proportionate anti-money-laundering practice, which serve the privacy constraint; and settlement on local rails such as instant payment systems and mobile money, which avoids rip-and-replace. It is equally important to state what the infrastructure does not do. It does not, on its own, formalize an economy, monitor labor, or improve financial health. Those depend on incentives, social protection design, consumer protection, and connectivity that no payment protocol can supply. Open infrastructure improves the conditions under which inclusion can happen. It does not guarantee the outcome, and presenting it as a formalization or visibility tool would both overstate it and aim it in the wrong direction.

1. Make financial interoperability and customer choice the objective, not any single rail, provider, or technology. Require public disbursement programs to use open, documented standards that any compliant financial service provider can implement, and let recipients choose where their money lands.
2. Measure success by use and outcomes, not accounts opened. Track active use, resilience, and financial health, and fund the independent evidence needed to test, rather than assume, the links between digital payments and formalization.
3. Pair digitization with proportionate identity requirements and data minimization, and preserve cash. Adopt tiered, risk-based identity rules so people with limited documentation can reach basic services, collect the minimum data necessary, and maintain robust cash-in and cash-out access so that digitization does not exclude the poorest or the disconnected.
4. Remove the barriers to adoption, as seen by consumers. Address documentation, fees, distance and low confidence directly, through risk-based identity, fee transparency, well-supported agent networks and multilingual, low-literacy interfaces.
5. Use supervised pilots before scaling. Test wage, benefit, and remittance use cases in regulatory sandboxes with monitoring and consumer-protection guardrails; open source implementations such as Rafiki make low-cost, inspectable pilots feasible.
6. Distinguish survival-driven informality from deliberate evasion. Direct enforcement efforts where liabilities are material or where conduct harms third parties, including employers who misclassify workers or withhold collected contributions. Where liabilities are negligible and the constraint is access, apply inclusion and protection measures instead. Do not use coercive, visibility-driven measures against workers whose non-compliance reflects the cost or unavailability of formalization.

Interledger technology alone will not bring 2 billion workers into formal protection. But when used to widen access, choice, and privacy beneath well-designed inclusion and social protection policy, we believe that Interledger technology can help create the conditions in which that transition happens on rights-respecting terms.