Adoption and welfare effects of payment innovations: The case of digital wallets in Peru
Digital wallets like Yape and Plin have gained widespread popularity in Peru, enabling users to make instant payments via quick response (QR) codes or mobile phone numbers. This paper examines the drivers of their adoption and their impact on everyday life. Using market share data for six digital payment instruments and cash to estimate demand, we find that features such as lower fees, 24/7 immediate payments, QR code payments, and interoperability with point-of-sale (POS) terminals are key to their success. For instance, a PEN 0.01 (USD 0.003) increase in payer fees would reduce digital wallet market share by 0.31 percentage points (pp), while debit cards and cash would gain usage. Simulations further indicate that removing 24/7 immediate transfers would reduce digital wallet usage by 15.75 pp, discontinuing POS payments by 26.01 pp, and eliminating QR code functionality by 4.45 pp. Additionally, our findings suggest that the adoption of digital wallets has contributed to a sustained increase in consumer welfare among banked individuals over time.
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