Saving behaviour and mobile banking

Published: March 10, 2022

We use the introduction of mobile banking in India to investigate the behavioral and social barriers to savings and evaluate how mobile accounts can help to improve the use of public benefits. The possibility to provide banking services through mobile networks allows a rapid decrease in the number of unbanked adults in low- and middle-income countries. In India, the government has made it a priority to provide a bank account to all households in the country. The next step is to pay public transfers directly into the recipient’s bank account, instead of in cash.

The policy question is whether digital transfers can improve savings and contribute to reduced poverty.

We sampled 442 villagers in 17 unbanked villages of Chhattisgarh. All of them got a bank account with our help. We showed the participants how to deposit and withdraw, and demonstrated how a fingerprint recognition tool protects their money.

Once the villagers were familiar with the features of their account, we started weekly interviews that we conducted for about ten consecutive weeks. At the end of each interview, the villagers received Rs 150, an amount equivalent to the salary for a day of work under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA). The only difference was the payment method: we randomly allocated them to being paid into the account (treated) or in cash (control).

We find that being paid into the account instead of in cash increases the account balance by around 131 percent (or Rs 463) after three months of weekly payments. Second, the effects are long lasting: five months after the last weekly payment, the balance of the treated is still twice the one of the control. Third, the villagers who were paid in cash do not save more in other assets, such as cash at home. However, they increase expenditures on regular consumption, such as rice, vegetables, fuels, and soap with about Rs 387. The increase in consumption expenditures by villagers paid in cash is remarkably similar to the increase in the savings of the villagers paid into the account. Therefore, we conclude that the treatment has a net positive impact on the respondent’s total savings.

We interpret our findings as the result of the default option. We provide evidence that the treatment impacts can be attributed to a lack of self-control and, to a certain extent, to the (minimal) time and effort it takes to do a transaction.

The findings are important from a policy perspective, as they make very clear the positive effects that digital transfers can have on savings among the poor, and therefore on poverty reduction in the longer term.

Implementing partner
India, Chhattisgarh
Study population
442 households, 17 villages
Study type
Randomized evaluation
2013 - 2017
Vincent Somville (project leader), Ingvild Almås, Rahul Mehrotra, Julia Seiermann, Lore Vandewalle