Warning: Mobile money can make you poor

Sending money across Bangladesh has never been so easy.

My friend Farhan has been supporting his parents for years. Long ago, he set up a monthly system by which he’d give them a fixed amount of cash (~$250) on the first day of the month, and then let them figure out how to allocate it.

Sometimes, especially around a holiday or a special celebration, they’d need a bit more, so Farhan would either need to drive over to their house, or send it with a trusted friend from the neighborhood.

When his parents went to their village, they’d make sure to take enough money with them for any local expenses, including the house they were building, and their transportation.

Then along came mobile money — bKash, allowing people to send money from one phone to another. Farhan’s parents are hardly tech savvy — when they hear the phone ring but don’t get to it in time, they call up their kids and friends asking “Did you just call me?” until they find out who it is. So Farhan figured mobile money was probably over their heads.

Yet it was actually Farhan’s dad that first suggested that he use bKash to send money. It was late at night, he planned to head out to his village in the morning, and he was short on cash. He didn’t want it on his own phone; he wanted Farhan to send it to the guy who ran the corner grocery store, and he’d pick it up there. So Farhan (who at this point also didn’t have a bKash account on his phone), walked down to the guy at his corner store and sent his dad the requested $12.

A few days later, his dad called from the village. They needed money for some repairs on the house. Could Farhan send $20 via bKash to a distant cousin who lived there and had a bKash account?

Mobile money made it easier for Farhan to send money, which meant that his family was able to ask for it more frequently and expect it faster. The inconvenience barrier was eliminated, which both took away a really great excuse (“I’d love to, but I’m out of town this weekend….”) and created an easy way to send money instantly.

Mobile money was costing Farhan a lot! And that’s just his dad’s demands. There’s also many friends of his who constantly want to borrow money, but are slow to pay it back. Mobile money means you can call someone up on the phone and ask for an immediate loan. If they know you have money, it’s hard to say no politely, meaning that people like Farhan often end up saying yes, leading to further savings depletion.

This is a common phenomenon. Informal discussions with people working in Dhaka that are supporting their families back in villages — like garment factory workers, drivers, and maids — supports this theory. One woman told me, “I used to be able to save a bit because I had a month or two before I went home. Now my parents expect me to send all the money on the day I get my salary, and they want more.”

While mobile money can create access to a safe savings mechanism, the other side of the “coin” is that it makes money more liquid. And the social conventions of saying “no” to family and friends — which relied on accepted excuses like “I don’t have any money right now,” or “I can’t come home right now,” or “I don’t have any cash on hand,” or “Give me a few days to go by the bank,” or …..you’ve got the idea — hasn’t evolved yet to have gentle and acceptable ways to say no given that mobile money eliminates most of those excuses.

So mobile money, at least in the short term, might make earners share more of their money (usually for someone else’s consumption purposes), decreasing savings. Will we return to the status quo once social norms catch up, or will mobile money ultimately make it harder for many to save?

Product designers — how might we put a lock on people’s accounts that gives them an easy excuse when someone wants money? One idea would be to look at Ignacio Mas’ suggestions about including “pockets” or other “discipline-out” measures. If some money goes directly into a savings “pocket” and is less liquid, perhaps it’s safer. Maybe the balance that shows up when you check is just your “current balance”, not the sum of all your pockets.


Evidently there’s research going on elsewhere looking at the relationship between savings behavior and usage of digital financial services. The NYU Financial Access Initiative sends out an AWESOME weekly digest of good research and idea that they’re contemplating (Sign up here). Last week’s included this:

“Tomoko Harigaya studied what happened when savings groups in the Philippines were transitioned to digital finance tools — in other words, group leaders stopped taking cash deposits, instead directing members to make deposits themselves using mobile money. Members could now also make withdrawals without traveling to a bank branch. The result was a significant drop in savings deposits and savings balances and an increased reliance on informal loans. In other words, “convenience” went up and usage went down. The effects seem to be driven by those closest to bank branches ex ante, by the loss of positive peer effects and by increased salience of fees for transactions.”