What factors predict success for mobile money? New evidence from cross-country multi-variable regression analyses
DFS Lab's Jake Kendall, along with Nika Naghavi and and Shawn Cole, conducted a cross-country study that examined the importance of key business and market characteristics on the growth of active mobile money accounts and mobile money transaction volumes and values.
The rapid, early success of M-PESA in Kenya led some to predict that low-cost, digital financial services would quickly spread throughout the developed and developing world. M-PESA reached one million active mobile money accounts in 2008, just after a year of launching their service, however it took a further three years for a second service to reach the one million active accounts mark. The initially slow rate of growth has increased, starting in about 2012. By the end of 2015, 17 services had surpassed one million active accounts on a 30-day basis. On a 90-day basis, 30 services had passed one million active accounts, and five services had more than five million active accounts.
This growth suggests that the industry may be getting smarter about how to succeed in the business. The GSMA, along with other stakeholders and scholars, have published a number of research papers on determinants of success for mobile financial services, highlighting the role of adequate investment, operational best practices, organisational design, and enabling regulation to drive uptake and usage. However, the industry lacks a comprehensive, cross-country analysis which evaluates the relative importance of firm and market-level factors in a rigorous manner.
To better understand the success factors for mobile money, the GSMA partnered with Shawn Cole, a professor at Harvard Business School, and Jake Kendall, the Director of DFS Lab at Caribou Digital, to examine the relative importance of key business and market characteristics on the growth of active mobile money accounts, as well as on mobile money transaction volumes and values through multi-variable regression analyses.
Today, we are publishing highlights of this research that we believe is the first-ever large-sample quantitative analysis of the expansion of digital financial services. Some of the key findings from the analysis include:
These facts are remarkable and suggest that an enabling regulatory framework can promote the growth of the digital financial services industry, that MNO-led services may be better suited to offer widely adopted digital financial services. Indeed, by allowing additional number of countries adopting an enabling regulatory frameworks, the mobile money industry can further extend the reach of financial inclusion, with services achieving greater scale and improving the lives of low-income population.
We hope this quantitative assessment complements existing research on market- and firm-level characteristics behind the success of mobile money services.
This is the first comprehensive cross-country analysis that evaluates the importance of firm- and market-level factors in a rigorous manner, and was originally summarized in a blog post for GSMA in November 2016. See the full post or download the publication.
Lara Gilman is a fintech entrepreneur specializing in mobile money solutions. She was a participant in DFS Lab's inaugural bootcamp in 2016 and a winner of one of five competitive DFS Lab grants to further iterate her company Yooz. See more of Lara's writing on Linkedin.
Demonetization in India has been anything but straightforward and the jury is still out on whether the controversial move will prove worthwhile. The global chatter has been mixed, ranging from bold to foolhardy. Bold because demonetization could trigger a much-needed step-change in the long-term exposure to black money (which some have argued could only have been influenced by something dramatic); foolhardy because the risk/reward coefficient seems lopsided. India risks as much as a full percentage point in GDP and most of the black money seems to have found itself back in the system anyway.
The experience on the ground is no less complicated. On the one hand, queues around the block have made the cash experience almost impossible, particularly for those who would feel it most. On the other hand, the painful cash experience is driving the adoption of digital, something that any fintech or financial inclusion enthusiast could find cause to celebrate. Whether or not you support the decision to demonetise, it’s clear this move has given fintech start-ups an unprecedented advantage against cash.
It’s the Modi lift. Wallets, payroll companies, acquirers, gateways and payment bank providers will have all had a pretty epic month as Indians look to digital solutions in the absence of the 500 and 1000 rupee notes. PayTM, an obvious front runner, reported signing up 20 million new customers since Modi’s announcement. Removing a significant amount of grease from the cash economy, the government has created a unique opportunity for fintechs to on-board merchants and customers to services which can not only solve their cash pains, but also address their broader financial needs. The question is, will customers stay engaged once the cash pains aren’t quite so acute?
From the standpoint of the digitisation of cash, the Modi lift will be temporary. Particularly as new 500 rupee notes increase in circulation, Indians will have the option to go back to cash. While fintech providers have this window of opportunity, it will not be a panacea for long-term digital adoption. In fact, with increased attention on digitisation, any security hack or financial loss in the fintech space could have an amplified impact on Indian consumers’ journey toward digital adoption. The biggest challenge of rapid growth is not getting caught off-guard by rapid growth.
For customers to thrive beyond cash, providers must remain focused on creating and reinforcing consistently positive customer experiences. The digital players who could move the needle will be those who remain invested in offering a relevant, reliable, transparent and accessible service. What is clear is that India is poised to make a potentially radical and permanent shift to digital. Whether India can make this shift is, largely, in the hands of the ecosystem players building it.