This article is based on a journal article titled ‘Social networks and technology adoption: Evidence from mobile money adoption in Uganda’ which was published in Cogent Economics & Finance. This shorter article highlights key findings from this study that explored how individuals who need to make decisions about the adoption of technology, particularly mobile money, are influenced by the adoption choices of their network of family and friends.

Mobile money technology has the potential to serve 1.7 billion financially excluded individuals in developing countries. Yet, its adoption has been slow in many societies. This might compromise the scaling up of mobile money and thus its role in enhancing financial inclusion.

In many developing countries, the limited availability and high costs associated with conventional banking and financial services have opened a gap for mobile money technology that facilitates transactions via cell phones. This new branchless banking technology offers a more accessible way for historically marginalised and unbanked communities to send and receive money. 

The adoption of mobile money technology depends on various factors, including trust. This suggests that individuals’ source of awareness or social ties could be an important determinant of mobile money adoption. While social ties and peer effects have been shown to significantly influence most individual and economic outcomes, little is known about their effect on mobile money technology adoption. Economists suggest that many individual decisions – including labour market decisions, education attainment, welfare participation, health and health care use, substance use, internet adoption and agricultural technology adoption – are positively correlated with the behaviour of the social group to which the individual belongs.

“Mobile money technology has the potential to serve 1.7 billion financially excluded individuals in developing countries. Yet, its adoption has been slow in many societies. ”

More about the value of social networks

Sociologists have long emphasised the importance of networks in shaping individuals’ behaviour. Social networks can provide information to individuals on the availability of services, their location, eligibility criteria, application procedures and other details (information channel) and can equally create peer pressure and alter service utilisation (norm channel). The information channel can be formal through media and newspapers, and informal through household members, friends and relatives. 

Quantifying the effects of networks on individual and economic outcomes can be challenging, mainly due to data limitations. Consequently, literature on network effects strongly overlaps with literature on neighbourhood effects and ethnic or language enclaves, as empirical evidence often uses spatial concentration of ethnic groups as a proxy for contact availability. This approach assumes that individuals mainly interact with geographically close people of the same ethnic group. The underlying assumption is that individuals from the same ethnic group in a given geographical area are more likely to spend time together and obtain information from each other. It also needs to be taken into account that individuals’ outcomes and the average behaviour of their reference group do not always provide conclusive evidence of network effects. A valid identification strategy is therefore required to address the reflection problem of how these individuals’ behaviour influences the network of which they are members.

“This new branchless banking technology offers a more accessible way for historically marginalised and unbanked communities to send and receive money.

To reduce some of the biases resulting from the reflection problem (i.e., trying to predict the behaviour of an individual by looking at the behaviour of the group to which the individual belongs), the quantity of networks (number of people in one’s geographical area who speak the same language) is interacted with the quality of networks (average service use of the language group).

It is not trivial to ascertain the relative importance of both channels (information and norms) through which social contacts may affect an individual’s behaviour. One study on health care programmes has shown that reliance on a strong social tie reduces the delay to seek care by 30%. 

“Economists suggest that many individual decisions are positively correlated with the behaviour of the social group to which the individual belongs.

The determinants of mobile money, electronic commerce, and mobile banking adoption in developing countries are well known. These studies mostly identify the key constraints and drivers of mobile money adoption but fail to account for the effects of social networks. However, recent literature argues that the information asymmetries gap is one possible reason for households’ or individuals’ limited ability to make informed decisions about the uptake of mobile money in developing countries. Information networks help to reduce information asymmetries and transaction costs for financial innovation adoption. 

A number of studies have shown that social networks are important determinants of financial decision-making and mobile money adoption among rural households. Individuals typically start adopting mobile money because of recommendations from friends, family members or other acquaintances. Studies have shown that mobile money adoption is positively influenced by the size of the social network in which information is exchanged. The effect was particularly pronounced for non-poor households. One study compared network effects between a rural region and an urban region, concluding that network effects are more substantial in rural regions.

“social ties and information spillover (networks) between household members, relatives and friends are expected to significantly increase the probability of mobile money technology adoption.

How was the study conducted?

While previous studies often focused on a small group of individuals, this study used a nationally representative sample to explore network effects based on the actual contact availability measure rather than the endogenous potential contact availability measure that has dominated the literature. The study therefore used a novel dataset and research design to quantify the impact of strong social ties on mobile money technology adoption, controlling for the possibility of preference heterogeneity between individuals. 

The study tested the hypotheses as to whether and how the different sources of information (family/friends and media) available to individuals affect their decision to adopt mobile money technology. Using the Uganda Financial Inclusion Insights (FII) Tracker Survey for 2013, the researchers found that mobile money adoption decisions are closely linked to the network of an individual’s family and friends. 

The FII Tracker survey provides in-depth information on the demand side of digital financial services, including mobile money adoption. The data includes information on specific aspects of access and use of mobile money platforms, and the drivers and barriers to the use of mobile money services. The social groups surveyed are differentiated by income, education, gender and bank account ownership. Social networks are thus captured by the source of information. Three sources are identified: media, mobile money field agents/promoters, and family/relatives and friends. Mobile money technology use and adoption is captured by a self-reported use of mobile money and ownership of an active mobile money account.

“Uganda … has also witnessed many mobile network operators come and go, which can erode trust in the system. This suggests that social ties and the source of information are likely to play a key role in mobile money adoption

This study therefore used the source of information on mobile money technologies available to individuals as a measure of social networks. The mean deviation of a group’s level of adoption relative to that of the entire sample is the measure of information networks commonly used in economic literature. This is a potential measure of social networks and requires an identification strategy that is not readily available in data sets. The researchers therefore supplemented the measure with an alternative measure that overcomes this identification problem. 

The researchers exploited a specific question from the data. All individuals were asked if they were aware of any mobile money technologies. Those who were aware were asked how they learnt about the mobile money technologies (source of information). This measure is more appropriate because it provides information on the exact source of information for each individual. It also links individuals to their close contacts (strong social ties) from whom information was obtained.

This is what the study found:

• Sources of information that INFLUENCED the uptake of mobile money services: On average, 82% of those that are aware of mobile money service providers learnt about them through social media (radio, television, newspapers, and billboards). Relatives, friends and neighbours make up the second largest source of information (12%) while very few (6%) learned about mobile money through field agents or other banking institutions. 
• Sources that CONVINCED individuals to adopt mobile money technology: Individuals also highlighted the sources that convinced them to adopt mobile money technology. The majority of adopters (59%) were convinced by their family members, 20% by friends and neighbours, and 21% by other sources including mobile money field agents or promoters. This indicates that strong social ties are highly correlated with mobile money adoption.

“Sociologists have long emphasised the importance of networks in shaping individuals’ behaviour.

What are the conclusions?

This study assessed how the decision to use or adopt a new financial technology depends on one’s information network, using individual data from the 2013 Uganda Financial Inclusion Insights (FII) Tracker Survey. Many researchers have used geographical and cultural proximity as a proxy for social networks in technology adoption studies. However, this is a potential measure of social networks; it does not disentangle endogenous from exogenous network effects. In this study, the researchers could identify both the potential and actual sources of information and infer the composition of the social network. Hence, there was no need to make assumptions about the social groups to which individuals belonged.

“The study tested the hypotheses as to whether and how the different sources of information (family/friends and media) available to individuals affect their decision to adopt mobile money technology.

The data explored whether an individual became aware of the advantages of mobile money technology through a friend or relative, a mobile money agent, or through social media. This allowed the researchers to focus on the information channels involved in strong social ties. The results showed that relying on friends and relatives to source information about the opportunities of mobile money services significantly accelerated mobile money adoption. Further, the network of family and friends, as well as sources of information such as media and mobile money field agents, increased the probability of adoption and use of mobile money technology in Uganda. On average, there are more users than adopters as it is possible for individuals to send and receive money through an agent or a friend’s account. Subsequently, the probability of owning and using mobile money technology increases by 0.57 and 0.38, respectively, if the source of information is a mobile money field promoter/agent. On the other hand, these probabilities increase by 0.47 and 0.32 if the individual receives information from the media, while family and friends increase the probability by 0.46 and 0.28 for use and technology adoption, respectively. The network effects are generally higher among the unbanked, women, the less educated and high-income individuals. These results suggest that a possible way of scaling up mobile money technology adoption is by leveraging the existing agent infrastructure. Mobile money service providers would most likely invest in media, yet these results show that mobile money agents might offer a more effective channel of information sharing on mobile money technology adoption.

“The results showed that relying on friends and relatives to source information about the opportunities of mobile money services significantly accelerated mobile money adoption.

The findings from this study can have direct policy implications. Policies aimed at increasing the level of financial inclusion, especially among financially disadvantaged groups, can exploit the multiplier effect of information networks. For example, the importance of financial inclusion (through mobile money adoption) should continuously be advertised in meeting areas and newspapers, providing the relevant information in different ethnic languages. In general, knowledge of the workings of social networks can help to address ethnic differences in the take-up of mobile money services, coping with ethnic segregation, and the vicious cycle of financial exclusion.

“The network effects are generally higher among the unbanked, women, the less educated and high-income individuals.

• Find the original article here: Mukong, A. & Nanziri, LE. (2021). Social networks and technology adoption: Evidence from mobile money adoption in Uganda. Cogent Economics & Finance, 9(1). https://doi.org/10.1080/23322039.2021.1913857 https://www.tandfonline.com/doi/full/10.1080/23322039.2021.1913857

• Dr Lwanga Elizabeth Nanziri is a senior lecturer in Development Finance and Director of the African Centre for Development Finance at Stellenbosch Business School. 
• Dr Alfred Kechia Mukong is a lecturer in the Department of Economics at the University of Namibia, a Carnegie Fellow and research associate in the Southern Africa Labour and Development Research Unit (SALDRU), School of Economics at the University of Cape Town. 

“knowledge of the workings of social networks can help to address ethnic differences in the take-up of mobile money services, coping with ethnic segregation, and the vicious cycle of financial exclusion.