Abstract
Why are banks important to us? To understand the role banks play in providing transaction services, I study an episode from Kenya where individuals use an alternative medium of exchange (M-Pesa), where cellphone minutes take on the role of currency – mobile money. Individuals do not have easy access to banking services and therefore face several risks while transacting with and storing cash, and hence M-Pesa pitches in as a substitute to banks. Theoretically, I consider an analogous environment by using a search-theoretic monetary model to establish important results. Using survey data from Kenya, I study the usage of this facility and find that individuals’ perceived riskiness of cash and their geographical distance from banks are key determinants of usage, confirming the hypotheses from the model.
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