BackMobile money not enough to promote savings
A study from Sri Lanka shows that even though mobile-linked savings deposits save costs of travel to banks, they do not lift household savings
PremiumMany of the world’s poorest people do not have a bank account. One possible obstacle is the cost of travelling to a bank frequently, particularly when deposit amounts are small. But a recent study in Sri Lanka found that even though mobile-linked deposit services substantially reduced the deposit costs, they did not change the banking behaviour of the poor much.
Suresh De Mel from the University of Peradeniya and his co-authors partnered with a large mobile operator in Sri Lanka to develop a savings product. It allowed participants to make deposits in a government bank’s savings account through their phone.
Over 2,000 individuals participated in this study. A large chunk was offered free phones and SIM cards along with the mobile service, and also got help with opening a savings account. The rest were offered nothing.
Four fifths of the participants who were offered the service opened the bank account and participated in demonstrations on how to make deposits. However, only 26% made at least one deposit through the mobile service, and just 7% made 10 or more deposits in a year.
There was an increase in monthly deposits in formal banks but no increase in total household savings. Household consumption or labour earnings did not change either.
Most importantly, more than half of the increase in bank deposits came through in-person deposits, not phones. This shows that once the account was opened, a majority were willing to travel to banks to make their deposits, and so, deposit transaction costs are not a major barrier to the use of bank accounts.
As reducing deposit costs had a limited effect on formal savings, the authors suggest that withdrawal costs could be a more important determinant in how much people save.
Snap Fact features new and interesting reads from the world of research
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!
