Regulatory Regimes Matter for Mobile Money Usage

At a recent Microfinance Club of New York event with Michael Joseph, the former CEO of Safaricom in Kenya and now the Director of Mobile Money for Vodafone, Joseph cited regulatory barriers as the principal reason that mobile money has not taken off in India, the largest market in the world and his current project. A new paper from Eva Gutierrez and Sandeep Singh at the World Bank confirms his intuition, finding evidence for the importance of regulation for mobile money usage by combining the World Bank’s Global Findex database with cross-country variation in regulatory regimes.

The authors argue that both regulatory certainty — stability in regulation — and regulatory openness — policies that favor the introduction of new technologies — are necessary for mobile money adoption. They construct an index of regulatory favorability towards mobile money and look at the relationship between their index and actual end user behavior using the Global Findex to track outcomes for 35 countries, finding that overall, regulation is a significant factor in explaining mobile money usage among both the banked and unbanked.

The regulatory principles that make up their index include e-contracting, or whether electronic signatures are recognized by the law; consumer protection, including whether the liability for illegitimate transactions rests on the operator; interoperability, or whether there is a legal framework that allows customers to switch easily between platforms; know-your-customer or customer-due-diligence, or whether the law relaxes know-your-customer requirements to enable mobile banking; agent/branchless banking, or whether the law allows agents to transact on behalf of banks; and e-money, or whether the law provides for electronic currencies issued by non-banks (like mobile providers).

Of these six component indices, the authors find that consumer protection requirements, interoperability, and relaxing know-your-customer requirements have the largest effects on overall use, while laws allowing agent banking and e-money also have significant but smaller effects. Grouping these indicators into legal frameworks that support openness and that support certainty, the authors find that legal support for openness appears to matter more than an indicator of regulatory certainty.

Based on these results, the authors argue that although a host of other factors- availability, convenience, cost and versatility- influence mobile money takeup, regulation plays a large role in determining mobile money adoption.

Cross-country work like this is important for understanding what drives the differences between adoption in clear mobile money successes like Kenya, and in places like India, and we hope to see more like it come out of the Global Findex data as well as other data sources.