Mobile Phones for Financial Inclusion: What Explains the Diffusion of Mobile Money Innovations?

Mobile money innovations are expanding rapidly in developing countries, where they appear to be on track to extend financial services to billions of unbanked populations. However, adoption rates differ significantly across countries, and the success of innovations is radically different within countries. To understand the factors that affect the development and diffusion of mobile money services, this study uses a mixed research method that combines cross-country data of adoption rates and an in-depth case study of a successful mobile money innovation. Quantitative analysis of adoption rates across countries indicates the varying role of institutional and economic factors on the adoption and usage of mobile money innovations. We undertake an in-depth study of M-Pesa in Kenya, one of the world’s most known mobile money innovations, to gain nuanced understanding of the development and diffusion of the innovation. Analysis using the functional innovation system approach reveals the key role of the lead firm in guiding the innovation process, and the importance of a supportive regulatory environment that sought to advance financial inclusion. The results further reveal how the power and interest dynamics of key actors in the innovation system can shape the emergence of appropriate technologies that aim to address social issues.