Mobile Money: The Effect of Service Quality and Competition on Demand

by Karthik Balasubramanian & David F. Drake

Executive Summary — Mobile money—the use of electronic money transfer through cellular networks—is rapidly expanding in developing countries, especially among the "unbanked." One persistent problem for mobile money agents, however, has been managing inventory and service quality. Using data from Kenya and Uganda, two East African countries at different stages of mobile money market development, the authors introduce an operations management lens for mobile money and explore the effects of competition and service quality on demand.

Author Abstract

The use of electronic money transfer through cellular networks ("mobile money") is rapidly increasing in the developing world. The resulting electronic currency ecosystem could improve the lives of the estimated 2 billion people who live on less than $2 a day by facilitating more secure, accessible, and reliable ways to store and transfer money than are currently available. The development of this ecosystem requires a network of agents to conduct cash-for-electronic value transactions and vice versa. This paper estimates the effect of competition and service quality on mobile money demand. In this setting, service quality consists of service reliability (lower stockout and system downtime rates), pricing transparency, and agent expertise. Among our results, we find that agents experience reduced demand for service failures due to stockouts, but not for service failures due to network downtime, suggesting that consumers differentially ascribe responsibility for service failure based on the type of failure they experience. We find that both stockout rate and agent expertise are important competitive dimensions in this setting. Pricing transparency, on the other hand, has a main effect on demand but has no significant interaction with competitive intensity. This paper furthers our understanding of the impact and interaction of quality and competition in service settings, while developing a foundation for the exploration of mobile money by OM scholars.

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