Effects of Digitization on Financial Behaviors: Experimental Evidence from the Philippines

Mobile technology has the potential to increase the efficiency and the usage of financial services for the poor. Many of these services, however, are traditionally delivered in a group setting. Digitization may then disrupt the existing social architecture, leaving its overall effect uncertain. I examine how the introduction of mobile banking in group microfinance affects savings behavior of existing clients using a randomized experiment in the Philippines. In areas converted to mobile banking, the average daily balance and frequency of deposits declined by 20% over two years. Much of these effects are driven by weakened group cohesion and sensitivity to transaction fees, and concentrated among members who lived near banking locations at baseline and had stronger connections to their microfinance groups. Two and a half years later, treated members near banking locations had lower household savings and relied more on informal loans. These findings provide a cautionary tale to those seeking to introduce mobile technology with the goal of increasing the usage of financial services.