Can Digital Payments Spur Formalization? Evidence from Small Businesses in Côte d’Ivoire

The rapid expansion of digital payment systems presents a unique opportunity to address inefficiencies in the informal business sector across sub-Saharan Africa. This project investigates how digital payment systems can reduce transaction costs and incentivize formalization among small and informal businesses in Côte d'Ivoire. The study focuses on alleviating inefficiencies associated with cash transactions, including small-change shortages and security risks, which are prevalent in the region. Partnering with Moja Ride and IPA Côte d'Ivoire, the project will pilot interventions with 200 small businesses to assess the impact of digital payments on transaction costs, access to credit, business growth, and tax compliance. The research will also explore how digital systems can facilitate better record-keeping and link businesses with formal credit markets and local tax authorities, ultimately aiming to support the formalization process and enhance fiscal capacity. This exploratory phase will provide evidence for a larger-scale intervention proposal aimed at improving financial inclusion and reducing the welfare costs of cash transactions.