Analyzing India’s Digital Wallet Adoption After Demonetization, with Nicolas Crouzet and Filippo Mezzanotti

Today Nicolas Crouzet and Filippo Mezzanotti, join us to talk about their research paper (joint with Ph.D. student Apoorv Gupta), which explores the digital wallet adoption in India, after the country voided the two largest denominations of its fiat currency in circulation in 2016. Both Nicolas and Filippo are professors of finance at Northwestern University’s Kellogg School of Management. The paper, called Shocks and Technology Adoption: Evidence from Electronic Payment Systems, investigates the diffusion of technologies subject to positive adoption externalities and argues that “in the presence of externalities, large, temporary shocks can lead to persistent waves of adoption.” They share some insight into what led to the demonetization and the effects it had, along with what the long-lasting implications of the shock have been in relation to digital payments. They also explore some of the global payment trends and discuss where India fits into the picture of payment digitization. For all this and much more, join us today!              Key Points From This Episode: What Nicolas and Filippo aimed to explore in writing this paper What the reason for India withdrawing 80% of their money was How the shock affected electronic payments Digital wallets contribute to financial inclusion in developing countries What network externalities are and how they affect FinTech adoption How coordination problems can hinder the adoption of new technologies What good and bad equilibrium are in the context of technology adoption How aggregate shocks can coordinate technology adoption Why consumers can drive network effects How the demonetization affected Indian consumers The policy lessons from India and how governments and companies can ensure equal adoption Tweetables: “The bank account penetration is really not that high in a lot of developing countries, but what is high is the mobile phone penetration.” — @mfriedrichARK [0:12:45] “One way to get around it and try to create more equal adoption is having a longer lasting policy.” — @filomezza [0:32:26]