An Unscientific Look at Stock Market Performance and Mobile Money, Pt.1

I’m still on this “political economy of technology for development/peace” kick.  This article came to mind since I’ve seen a lot of research on mobile money from the mobile telephone access side, but not much on the macroeconomic side (please share if you have good stuff on this!).  I do like this piece from William Jack and Tavneet Suri and would love to see more if it’s out there.

To start with, this is an “unscientific” look since it only came to mind about a week ago and there are only two cases I really looked at with any depth.  To do this right, there would need to be a careful selection of cases, probably some time series analysis of market performance (stocks and currencies), mobile phone penetration and use data, and a qualitative analysis of microeconomic tendencies in a country.  I will probably do this at some point but for now, I’m just sharing a loosely defined idea.

As you well know, I’ve wondered about the impact that different investment vehicles and environments have on the positive and negative effects of technology access in conflict-affected and developing countries.  Why do some countries become ICT4D darlings, while others never really get into the tech-for-good groove?  I’ve posited an explanation of why Kenya’s political environment makes mobile reporting and mapping useful for preventing conflict; is there something unique to banking and investment environments that makes mobile money stick in one place and not another?

There are obvious answers; regulatory regimes (banking and telecoms are two of the more regulated sectors at the national and transnational levels), comfort with the system among the populace, liquidity at the agent level, associated fees, etc.  An answer I’ve seen less research on, but would love to be pointed toward if it exists, is whether “take off” happens in terms of mobile money user base as a function of currency strength and basis interest rates.  This could be useful for understanding when it’s economically viable to set up a mobile money system for the clients, and also understanding the power dynamics at work when a mobile money system takes off.

Since we tend to look at mobile money as a process of ‘banking the unbanked’ with the aim of providing financial stability, the first question to look at is when does mobile money become economically rational.  There are fees at multiple levels at work in a banking system, whether it’s mobile or traditional.  These fees and rates drive decision making on the consumer side; this could be a choice to upgrade a checking account, take out a loan, or subscribe to a service like mobile banking.

If I’m going to use M-Pesa for example, I have to decide whether the fees relative to the size of the transfer make economic sense; high fees will either drive volume of transfers or the size of the transfers down, unless the currency surges in value relative to purchasing parity power.  In this case though, I’d probably bank traditionally and benefit from having access to a strong currency.  What if the currency is falling relative to fixed rates (most of us live in a world of fixed fees and rates)?  In a system where currency is weakening it might make more sense to use a mobile banking system and save on the opportunity costs of traditional banking, at least until the fees relative to the currency value become too expensive.  If some savvy investor can find the cut point for marginal value of choosing mobile banking, that might tell us a bit about the economic environment that mobile banking works in.

I think this is a good place to pause.  Part II will drop tomorrow!

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