Mobile Money Operations: Policies for Managing Cash and Digital Currency Inventories in the Developing World

Abstract

Problem definition: Mobile money systems—platforms built and managed by mobile network platform operators (MMPOs) to allow money to be stored as digital currency—connect millions of poor and “unbanked” people to the formal financial system. Unfortunately, low service levels because of the suboptimal management of cash and digital currency (e-float) inventory impede the development of these ecosystems. Accordingly, we seek to answer the question of how agents should manage inventories of cash and e-float. Academic/practical relevance: This paper extends inventory theory to the mobile money context, unique in that sales of cash generate inventory of e-float and vice versa. In doing so, we address a key pain point for an emerging sector that improves lives at the base of the pyramid. Methodology: We develop an analytical heuristic to determine initial stocking levels for cash and e-float and analyze its performance on simulated and actual data. Results: By partnering with an MMPO, we tested the performance of the heuristic inventory policy with data from more than 35 million transactions. The heuristic captured 99.9998% of the optimal profit on simulated data and, on actual data, we found that following the recommendations could increase agents’ profits by an average of 15.4%. Managerial implications: We develop a pragmatic inventory policy that performs nearly optimally. We also analyze under which conditions the performance deteriorates and examine heterogeneity among agents with respect to the heuristic’s impact on their performance. Thus, we equip MMPOs with guidance as to whom to target and how. By contributing to service level and profit improvements, this work can make mobile money a more effective financial inclusion tool in the developing world as well as improve the livelihoods of agents. Supplemental Material: The online appendix is available at https://doi.org/10.1287/msom.2022.1175 .