An Empirical Examination of Why Mobile Money Schemes Ignite in Some Developing Countries but Flounder in Most

Abstract

Mobile money schemes have grown rapidly in some developing countries but failed in many more. This paper reports the results of an empirical study of mobile money schemes in 22 developing countries chosen based on prior evidence to include roughly equal numbers of successes and failures. It uses a combination of quantitative and qualitative evidence to determine why some countries succeeded in launching mobile money schemes and others failed. The analysis is guided by multi-sided platform economics and in particular recent work on the role of ignition and critical mass. We found that of the 22 countries, mobile money schemes have grown rapidly in 8; mobile money schemes have grown but not rapidly in 3; and mobile money schemes have largely failed to take hold in 8. (It is still too soon for us to make a call in 2 countries and there are no bases to determine ignition for 1 country.) Based on a detailed investigation into the similarities and differences between these countries and across the categories we reached several key findings. The first finding is the most robust and important. (1) Heavy regulation, and in particular an insistence that banks play a central role in the schemes, together with burdensome KYC and agent restrictions, is generally fatal to igniting mobile money schemes. (2) Mobile money schemes have been more likely to succeed in poorer countries that lack basic infrastructure. (3) The growth of the send-receive and the cash-in/cash-out platforms must go hand in hand. (4) Ignition and explosive growth occurs quickly or not at all.

Keywords: mobile money, financial inclusion, financial regulation, payments regulation, multi-sided platforms, mobile payments, CICO agents, MPESA

JEL Classification: E42, E44, E58, G21, G28, L25, L26, L51, L52, L53, L86, L96, L86, L88, N27, N87, O16, O25, O55