In a bustling workshop in Bogotá, Colombia, James Downer is busy assembling e-bikes. He is reimagining how to bring financial services to Latin America's informal economy. His startup Guajira Bikes manufactures e-bikes with a unique feature: they can be remotely disabled if payments are missed. These vehicles are sold to Venezuelan migrants and gig economy workers who lack traditional credit histories, enabling them to generate income through delivery services and other jobs.

This innovative approach to financing - using technology to secure digital collateral - is transforming how credit reaches the traditionally underserved. Leading this revolution is PayJoy, a fintech company that has originated over $2 billion in loans across eight countries by applying similar principles to smartphone financing.

Founded in 2015, PayJoy pioneered the use of phone-locking technology as collateral, enabling them to extend credit to customers who lack traditional banking relationships or credit histories. When payments are missed, the smartphones become temporarily unusable until payments resume. This simple yet effective mechanism has allowed PayJoy to serve over 13 million customers across Latin America, Africa, and Southeast Asia, with 50% being new to credit entirely.

"Traditional lenders often overlook the majority of consumers in emerging markets due to lack of credit history," explains Doug Ricket, PayJoy's CEO. "But by using technology as collateral, we can safely extend credit while helping people build their first credit scores."

The impact extends far beyond mere device ownership. A UC Berkeley study found that access to PayJoy financing increases customer income by an average of 6%. For many customers, a smartphone is their first gateway to the digital economy, enabling access to mobile banking, gig economy opportunities, and digital services.

This model is particularly transformative for women entrepreneurs and informal workers. In Mexico, where 47% of PayJoy's customers are women, 92% report that smartphone financing helps them maintain their current job or business. Many of these customers operate in the informal economy, with 26% reporting no stable monthly income.

The success of this approach has sparked innovation across the sector. From Downer's e-bikes in Colombia to similar initiatives emerging across Southeast Asia and Africa, entrepreneurs are applying digital collateral principles to finance everything from appliances to productive assets. The key innovation is using technology to solve what has historically been credit's biggest challenge in emerging markets: lack of credit history and capital.

PayJoy's growth - now approaching $450 million in annual revenue - suggests this model could help solve one of financial inclusion's most persistent challenges. By combining digital collateral with consumer protections like "no late fees" and "no accruing interest," these companies are demonstrating how technology can make credit both accessible and responsible.

As smartphone penetration continues to grow in emerging markets, this trend appears poised to accelerate. PayJoy is already expanding into broader financial services, aiming to compete with established neobanks like Nubank and Mercado Libre. Meanwhile, entrepreneurs like Downer continue to adapt the model to new use cases.

For the billions of people still lacking access to formal financial services, these innovations represent more than just credit - they're a pathway to economic opportunity. As traditional financial institutions struggle to serve these markets, technology-enabled lending might finally bridge the gap between informal and formal financial systems.