The Leapfrog Effect: How Emerging Markets are Outpacing the West

The West is struggling, at the expense of our tax dollars, to keep a 60-year-old digital relic alive, while emerging markets view it already as an obstacle. From India to Southeast Asia, entire nations have decided not to follow our path. They haven’t renovated the old roads; they’ve built their own from scratch

To understand this lack of flexibility in Western countries, in contrast to Asian countries and India, we will take a closer look at how the banking system works, as it perfectly illustrates the situation. By the end of this article, you should understand why we are trapped in what economists call the "First-Mover Disadvantage."

In the 1970s, the West built the world’s most advanced infrastructure: complex banking networks and protocols like SWIFT. At the time, it was a revolution. Today, it is an anchor.

This system manages tens of billions of lines of code written in this widely used language and processes trillions of transactions every day in the banking, insurance, and public administration sectors. It is difficult to independently verify this figure, as methods for counting lines of code vary and much of the legacy code is proprietary.

The language in question is COBOL. The CODASYL committee published its first specification in 1960, and the vast majority of global banking transactions still rely on this language.

COBOL source code reads like a memo. You simply multiply the hours by the rate to get the gross salary. A manager, not just a programmer, could review this line of code and understand it. This was no accident. That was the entire design goal: readable, portable, precise. Today, it runs on more machines than any other language on Earth. Most people think COBOL persists solely because of migration costs. The codebase is too large, the risk of migration is too high, so the old programs simply keep running.

That code has been patched, amended, and extended through six decades of tax law changes, benefit formula revisions, and system upgrades. The replacement cost for a working COBOL system is not just the cost of rewriting the code. It is the cost of re-encoding every business rule, every edge case, every regulatory exception the original programmers built in and then testing the result against 60 years of real transaction history.

This is the sunk-cost fallacy at work: an infrastructure so old that maintenance costs skyrocket with every change.

The same could be said of an item that everyone still carries in their wallet: the credit card. It is the quintessential symbol of this burden. In the West, mobile payment is often nothing more than a “digital wallet” (Apple Pay/Google Pay) grafted onto a traditional card system.

For more information on the risks associated with outdated architecture, I recommend my article on cryptography: “Post-Quantum Cryptography: Why Your Secrets Aren't Safe Anymore”

Velocity Shift

The main difference between the digital revolution and industrialization, or even electrification lies in the speed at which it is adopted. It took no less than a century for electricity to reach all Western homes. It was a game of physical permits, copper wires, and literal trenches.Today, the marginal cost of distributing a technological innovation is close to zero. We have shifted from slow, costly adoption to rapid, inexpensive, exponential adoption.

This is where the noose is tightening: while Western countries struggle to keep their infrastructure which is over 50 years old up and running. emerging economies are building new and innovative infrastructure at unbeatable prices, tailored to current needs and completed in record time.

NOW is the time to explain how emerging countries are using their funds to build public digital infrastructure (DPI). Understand that these countries are starting from scratch, which allows them to build a new “sovereign digital infrastructure”: a unified, programmable foundation for a modern society.

Commonly known as “Leapfrogging”. This phenomenon occurs when a country bypasses the traditional intermediate stages of development and adopts cutting-edge technologies directly. It is the solution to the “first-mover disadvantage” explained in Part 1. They have turned the absence of legacy systems into their greatest competitive advantage.

Instead of viewing identity as a collection of physical documents, India has implemented Aadhaar, a digitally-driven biometric system designed for 1.4 billion people. It is more than just an ID; it is the “Layer 0” of the entire economy.

By implementing secure digital authentication, this system has replaced weeks of paperwork with an e-KYC (Electronic Know Your Customer) process that takes just three seconds. This simple architectural choice has overcome the main barrier to financial inclusion: the cost of trust. The impact has been transformative, enabling more than 500 million people to open their first bank account in record time.

The secret sauce of this architecture isn't just the individual layers: it’s their ability to talk to each other. In the West, we suffer from "Digital Silos" your bank, your health records, and your identity exist in isolated bubbles.

With these digital rails in place, countries like Indonesia and Vietnam have birthed "Super-Apps" like Gojek or Grab, where the bank becomes invisible.

The adoption in these markets was fueled by a structural void. Before the leapfrog, these economies operated almost exclusively on a cash basis, a payment method as flexible as it was invisible.

For governments, the shift from a society that operates on untraceable cash to a digital system is a game-changer. It provides fiscal transparency. Overnight, the “underground economy” becomes quantifiable. This makes it possible to implement data-driven policies, improve tax collection, and deposit social benefits directly into citizens’ digital wallets, without intermediaries or “leakage” (corruption).

At the household level, adoption was instantaneous because it solved a survival problem. These digital rails acted as a frictionless marketplace.

We are at a crossroads. We can either cling to our “digital relics” or accept that the rules of the game have fundamentally changed. To overcome the first-mover disadvantage, we need to make a radical shift in our long-term vision. We must stop viewing payments and identity as “products” sold by private monopolies (Visa, Mastercard, tech giants). To remain competitive, these must become public services. When the “infrastructure” is free and open, innovation builds on the existing system rather than replacing it.