Mobile banking has continued to grow globally for a very simple and obvious reason: it’s convenient and easy. While this is great for retail banking and just generally making life easier, is there a takeaway for those of us working in investment banking and the asset management world?
A hypothesis would suggest that there is. After all, mobile banking means more people transacting more frequently, which would mean more money velocity–the measurement of how often money changes hands. More money velocity has many important implications to the market, the most important being inflation.
This goes back to the MV = PQ equation at the center of monetarist theory, and it is an equation that is accepted by virtually all orthodox economists. M is money supply, V is money velocity, P is the price of goods/services, and Q is the quantity of goods and services. So, as you can see from the math, more money velocity will drive prices upwards, all else equal.
Mobile banking therefore will cause inflation, and it can cause inflation in emerging markets where mobile banking is still growing at a fast rate and where monetary policy tends to be less responsible. So does mobile banking cause inflation, and is this something analysts should think about?
So far, the research is pretty interesting–and counterintuitive. One study saw that, in Kenya, mobile banking actually resulted in less money velocity. Another study on a much broader scale saw that there was a correlation, and money velocity rose between 2.2% and 3.1% due to mobile banking. Thus it can result in inflation–but it can also raise GDP, not just in inflationary but in real terms as well. That’s because mobile banking makes transactions that weren’t possible or easy happen more fluidly, encouraging greater economic activity.
When analyzing an asset or an investment in a country where mobile banking is growing and transactions are impeded by a lack of technology, mobile banking can indeed have significant implications for the value of that asset or investment. And this is why analyzing an opportunity must always include a contextual understanding of the real on-the-ground experiences of the people who makeup the market where that opportunity exists.