PROJECT

FRAUD ON MOBILE FINANCIAL MARKETS: EVIDENCE FROM A PILOT AUDIT STUDY

Researcher: Francis Annan, PhD Student in Sustainable Development

Financial access and inclusion in poor and low-income environments have recently been transformed by the emergence of mobile financial services like Mobile Money. But potential fraud is often hypothesized as a major barrier hindering the expansion, functioning and sustainability of these markets. Yet no systematic evaluation of such a market barrier is currently available.

In a randomized control trial across 6 low-income communities in Ghana, my project evaluates the extent of fraud—overcharged transactions—on Mobile Money and explores the mechanisms underlying the results. Trained auditors visited vendor points, seeking to make actual Mobile Money transactions, either by sending or receiving cash. My results indicate that approximately 22% of typical transactional volumes become fraudulent. There is evidence that fraud is more concentrated when cash is sent. Additional audit experiments indicate that financial sophistication and literacy are crucial in reducing fraud in Mobile Money transactions, but market competition seems to play a more limited role. These results have notable implications for financial technology adoption and inclusion in poor societies, highlighting the need for fraud-reducing interventions and regulation of emerging mobile financial markets like Mobile Money.