Service Quality, Competition and Poverty: An Analysis of African Mobile Money Agents

Abstract

The use of electronic money transfers through cellular networks ("mobile money") is rapidly increasing in the developing world. This electronic currency ecosystem could improve the lives of about 1 billion people who live on less than $2 a day by facilitating a secure, accessible, and reliable way to store and transfer money. The success of mobile money requires a network of agents to provide high quality service in conducting transactions. We investigate how two elements of service quality—price transparency and inventory—influence demand for transactions, and the drivers of agents' decisions on service quality. Moreover, we study the moderating role of competition and poverty on mobile money network demand and agent decision-making. Using data from Kenya and Uganda, and instrumenting for potentially endogenous regressors, we find that both price transparency and inventory increase average demand for mobile money transactions. However, the effect of inventory on demand is moderated by competition and poverty: competitive intensity decreases the effect of inventory while poverty increases it. We also find that both competition and poverty increase price transparency and inventory of cash and electronic value. Strikingly, while controlling for demand and other factors, our results indicate that agents in high poverty areas devote more capital to their cash and e-float inventory. This study not only furthers our understanding of service quality, competition and poverty, but also offers insights on how mobile-enabled financial services can advance the achievement of the United Nations Sustainable Development Goals and facilitate the distribution of humanitarian aid.

Keywords: service quality, competition, poverty, mobile money, sustainable development goals