Digital Payments, Cash Substitution and Sustainable Financial Inclusion in Latin America and the Caribbean

This study examines the association between digital payments adoption and reliance on cash in Latin America and the Caribbean (LAC), as well as its potential implications for financial inclusion. Using microdata from the 2021 Global Findex Survey for 17,498 adults, logit models and average marginal effects are estimated to assess this relationship according to income, gender, age, education, rural-urban location, and internet access. The results show that the use of digital payments is associated with a lower probability (9.7 percentage points) of using cash, a statistically significant and robust effect among different population groups. People with less education, older age, and limited access to the internet are more dependent on cash, while income differences are less pronounced than expected. Counterfactual simulations consistently show lower reliance on cash among digital payment users, regardless of socioeconomic status. The study provides new microeconomic evidence for the LAC by quantifying the association between digital payments and cash use and analyzing its heterogeneity between socioeconomic groups. Sustainable financial inclusion is not measured by a composite indicator or as an independent variable; it is used as an interpretative framework to analyze whether the adoption of digital payments is associated with less dependence on cash and greater interaction with formal financial channels. Policy implications suggest strengthening payment interoperability, digital trust, financial education, and consumer protection to expand integration into formal financial channels.