authors
Paschaline Ugwo and Tolulope Aladebumoye

abstract
The informal economy continues to be the primary source of employment and income creation in most of Sub-Saharan Africa but it is also indicative of enduring limitations in terms of low productivity, lack of access to finance and poor integration with state institutions. Simultaneously, the area has been witnessing a historic growing number of digital payment systems, with mobile money providers leading the pack and an uptake of an entire FinTech innovations. The paper analyzes the question of whether, and under what circumstances, the digital payment systems help formalize the informal economic activity. Going beyond a more restricted perspective of formalization as the registration of firms, the paper takes a multidimensional approach that includes fiscal, financial, administrative, and operational facets of formality. The analysis is based on household and enterprise surveys, administrative data, and qualitative field evidence to find causation when using a mixed-method empirical approach that harnesses spatial and temporal differences in the implementation of FinTech initiatives across different countries in Sub-Saharan Africa. The results indicate that the use of digital payments can be linked to significant changes in record-keeping, access to formal financial services, and engagement in regulated value chains. Nonetheless, implications on tax registration and complete legal formalization are biased and situational. In other environments, digital payments support the partial or strategic formalization of digital payments instead of a full shift into the formal sector. The article advances the field of development economics and research in information systems by elucidating how digital financial infrastructure alters informal economics behavior as well as outlining the dangers associated with exclusion, surveillance, and retrogressive design principles. The findings highlight the relevance of complementary institutional changes and incentive-based strategies in case the digital payments are to facilitate inclusive and sustainable formalization.