The Influence of Digital Financial Services on Consumer Behavior and Welfare in Developing Economies

Digital financial services (DFS) have changed how consumers in developing economies manage income, expenditure, savings, payments, and financial risk. This paper reviews the theoretical and empirical literature on the influence of DFS on consumer behavior and welfare through utility maximization, income and substitution effects, and risk management. Evidence from mobile money and digital finance studies shows that lower transaction costs, easier access to transfers and savings, and improved consumption smoothing can increase welfare, especially for financially excluded households. However, the benefits remain uneven because of differences in digital literacy, infrastructure, affordability, regulation, fraud exposure, and data protection. The review also identifies important limitations in the existing evidence, including the concentration of studies in East Africa and the limited availability of long-term comparative data. The paper argues that inclusive digital infrastructure, consumer protection, financial literacy, and effective regulation are necessary for digital finance to support broad-based welfare gains.

Digital financial services, consumer behavior, consumer welfare

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