Mobile Money as a Steppingstone to Financial Inclusion
How Digital Multisided Platforms Fill Institutional Voids
Platform Papers is a blog about platform competition and Big Tech. The blog is linked to platformpapers.com, an online repository that collects and organizes academic research on platform competition.
By Aparajita Agarwal and Valentina Assenova.
In a bustling marketplace in rural Kenya, Amina, a small-scale vegetable vendor, juggles her daily sales while sending money to her son in a nearby town—all through her basic mobile phone. Without ever stepping foot in a bank and having no physical records to prove their creditworthiness, Amina has secured a microloan to expand her stall, thanks to M-Pesa, a mobile money platform revolutionizing financial access in her region. Stories like Amina’s are no longer unique; they represent a rapid transformation taking place across developing economies.
This is a case of digital platforms filling “institutional voids,” as our recent paper published in Organization Science shows. What are institutional voids? In developing economies, institutional infrastructure (e.g., legal systems, banking systems, capital markets) that facilitates transparent and efficient market transactions is weak or underdeveloped. The gaps in such market-enabling institutional infrastructure are called “institutional voids.” These voids pose unique challenges for firms and individuals as they impede market transactions, limit access to products and services, and constrain the growth and productivity of firms. For example, the absence of credibility enhancers (e.g., structured documentation of income sources), information analyzers (e.g. credit bureaus), and aggregators and distributors (e.g., bank branches) results in voids in credit market institutions, making it challenging for individuals and small businesses to get credit.
Mobile money platforms are digital platforms that deliver financial services to unbanked individuals through mobile phones without a bank account, credit card, or internet access.
However, over the last decade, digital multisided platforms, such as mobile money platforms, which connect users and service providers in multisided networks have emerged as new forms of intermediaries. Mobile money platforms are digital platforms that deliver financial services to unbanked individuals through mobile phones without a bank account, credit card, or internet access. These features make them distinct from other mobile payment services, such as Venmo, Apple Pay, Zelle, PayPal, and WeChat Pay. Some of the most widely used mobile money platforms include M-Pesa, MTN Mobile Money, and Airtel Money, which provide a wide range of financial services to unbanked customers in developing economies through basic mobile phones.
What are the implications of the emergence of such digital platforms in contexts where institutional voids are prevalent? On the one hand, digital platforms are known to disrupt existing industries, take market share from incumbents, and capture significant value through their distinct features. They may be able to do so even more easily when institutional voids are deep. On the other hand, these unique features may also engender new ways through which platforms may enable market participants to overcome institutional voids and create positive spillover effects for economic activity. Hence, the implications are not obvious.
To answer this question, we study how the expansion of mobile money platforms in developing economies affects access to credit from formal financial institutions, such as banks and microfinance providers.
Positive Spillover Effects of Mobile Money Platforms
In the effort to expand financial inclusion, central banks in many countries have allowed non-banks, such as mobile network operators and fintech startups, to operate mobile money platforms and issue digital money (“e-money”). We evaluate whether such regulatory reforms have any spillover effects on access to credit from formal financial institutions, such as commercial banks, credit unions, and microfinance institutions. Our results show that mobile money platforms indeed expand credit access to their end users from formal financial institutions, such as traditional banks, thereby acting as stepping stones to financial inclusion.
About the resesearch: In our analysis of 151,771 individuals across 78 countries, we found that after regulatory reforms that enabled non-banks to operate as mobile money platforms, there was a substantial increase in end-user access to credit from formal financial institutions. On average, the reforms were associated with a 22% increase in the probability that respondents borrowed from formal financial institutions with even higher increases for women, individuals in the poorest quantile of income, and those with primary schooling or less.
We analyze data from multiple primary interviews and secondary data sources to identify three inter-related mechanisms that enable these positive spillovers:
Data-Based Certification: Mobile money platforms collect and analyze alternative data, such as mobile transaction histories and airtime usage, to establish the creditworthiness of users who lack formal credit histories. These data serve as a proxy for trust and reliability, enabling financial institutions to extend loans to previously excluded individuals. For example, M-Shwari, a mobile money platform formed through a partnership between Safaricom (a mobile network operator and owner of M-Pesa) and the Commercial Bank of Africa, uses M-Pesa transaction data to create credit scores for users.
Unified Access to Financial Services: Mobile money platforms collaborate with financial institutions to offer a single point of access to various financial services, including savings, loans, and insurance. These partnerships lower operational costs and overcome geographical barriers, especially in rural areas where traditional banks have little presence. For example, MoKash, a mobile money platform in Uganda leverages the digital infrastructure of MTN mobile and the banking capabilities of the Commercial Bank of Africa, to provide seamless financial services like savings and loans to millions.
Scaling Through Network Effects: Mobile money platforms benefit from powerful same-side and cross-side network effects, where each new user enhances the platform’s value to others. As more users join, the platform becomes increasingly attractive to not only other users but also agents and service providers, creating positive network effects. These network effects enable the platforms to rapidly scale to both new, financially excluded users and new complementors; increase transaction activity between the two sides; and thereby further accelerate both data-based certification and unified access to financial services.
Mobile money platforms benefit from powerful same-side and cross-side network effects, where each new user enhances the platform’s value to others.
Hence, these mechanisms work jointly. The first and second mechanisms are necessary but not sufficient on their own to overcome financial exclusion and require the third mechanism to scale as shown in the figure below.
Implications for Managers and Policymakers
The success of mobile money platforms offers several takeaways for policymakers and managers:
Foster Regulatory Innovation: Our findings suggest that regulatory reforms that allow new entrants into the financial services sector can foster innovation and co-creation This innovation results in the provision of more products and services on the rails of mobile money to previously excluded individuals and businesses and facilitates financial inclusion.
Encourage Partnerships: Digital platforms may not necessarily be a threat to incumbents, especially in developing markets. Collaboration between mobile money platforms and traditional banking institutions can create synergies that benefit all stakeholders. Through these partnerships, banks can access new customers, while platforms can expand their services, creating a win-win scenario.
Inclusive outcomes for digital platforms: Mobile money platforms highlight the importance of inclusivity in scaling digital platforms. Big Tech companies operating in advanced economies can draw inspiration from these models to design products and services that cater to underserved populations, bridging unmet demand for essential products and services such as finance and insurance.
These spillover effects and implications of mobile money platforms showcase the power of technological innovation to reshape economic systems and make them more inclusive. As digital ecosystems evolve, their role in addressing systemic inequities will remain a critical area of inquiry for scholars, policymakers, and practitioners.
This blog is based on research published in Organization Science, which is included in the Platform Papers references dashboard:
Agarwal, A., & Assenova, V. A. (2024). Mobile money as a stepping stone to financial inclusion: how digital multisided platforms fill institutional voids. Organization Science, 35(3), 769-787.
Platform Updates
Breakup on the table after Google Ad Ruling (1) (2) - A US judge found that Google willfully monopolized key parts of the digital ad market, marking a major antitrust blow. Potential remedies, including a potential forced divestiture, will be established in the trial's next phase.
Meta’s Instagram and WhatsApp acquisitions under fire - The FTC is challenging Meta in court, claiming its acquisitions of Instagram and WhatsApp stifled competition and hurt user experience. Regulators are pushing for a potential breakup, while Meta CEO Mark Zuckerberg argues TikTok’s rise proves the market remains competitive.
FTC sues Uber over Uber One subscription - Regulators allege deceptive billing, misleading savings promises in Uber’s $9.99/month subscription, and accusations of un-cancelable memberships and premature charges. With 30 million subscribers, Uber faces scrutiny regarding how it manages its service.
EU hits Apple and Meta with €700M fines - Brussels issues its first big tech penalties under its DMA regime, fining Apple €500M for App Store restrictions and Meta €200M over its “consent or pay” data policy. The ruling orders Apple to open up app marketplaces and challenges Meta’s approach to user data.
AI won’t take your job—someone using AI will? - This catchy myth misses the bigger picture; it’s not about individual tasks but about transforming entire work systems. The real challenge lies in redesigning organizations to keep pace with a rapidly changing playing field.
Intel’s fall from chip king to comeback contender - Once a Silicon Valley icon, Intel’s bet on in-house manufacturing left it lagging rivals. After limited gains in GPUs, mobile, and AI, the chipmaker is now opening its foundries to outsiders, racing to catch TSMC with its new 1.8nm process.
Nvidia caught in US-China tariff crossfire - The chip giant faces a $5.5B hit as new US export curbs block its China-tailored H20 AI chips, escalating the global race for AI dominance. Designed to sidestep earlier bans, H20 joins the more powerful H100 on Washington’s restricted list.
The Platform Papers references dashboard now contains more than 750 academic articles on platform competition (and counting)! Happy reading!
Platform Papers is published, curated and maintained by Joost Rietveld.