Is Fintech Good for Bank Performance? The Case of Mobile Money in the East African Community

Abstract

Mobile money, a technology-driven innovation in financial services, has profoundly penetrated the financial landscape in Sub-Saharan Africa, including banks. Yet, besides anecdotal evidence, little is known about whether mobile money adoption enhances or worsens bank performance. Combining hand-collected data with balance sheet data from Bankscope for a panel of 170 financial institutions over the period 2009-2015, we find a strong positive and significant relationship between the time elapsed since banks’ adoption of mobile money and their performance considering an array of proxies of bank profitability, efficiency and stability. In further investigations, we show how bank specialization and size alter such an association. Our results are robust to using instrumental variables, controlling for bank and macro level confounding factors, bank fixed effects and considering alternative measures of bank performance and mobile money adoption. Furthermore, we show that enhanced income diversification and broadened access to deposits are possible channels through which banks involved in mobile money improve their performance. Overall, our findings highlight the bright side of cooperation between banks and mobile network operators in the provision of mobile money.

Keywords: Fintech, Mobile money, Innovation, Bank performance, East African Community

JEL Classification: G02, G21, G23