Competition, Trust, and Price Transparency: Evidence from Branchless Banking Agents in Indonesia

While the rapid expansion of branchless banking agents has made it possible for millions of Indonesians to have access to financial services in their own locations or villages, this implies an increase in competition faced by agents in a market that is often characterized by imperfect information about the official transaction prices, overcharging, and customer mistrust. Economic theory makes ambiguous predictions about the effect of increased competition on market transparency. On the one hand, competition incentivizes agents to become more transparent in an effort to win their clients' trust and grow their business. On the other hand, competition makes financial agents more reluctant to be transparent to preserve market power and the ability to price discriminate.

Continuing from the findings from our exploratory phase, we will conduct a randomized evaluation to investigate whether market competition has the potential to enforce price transparency. To carry out this research, researchers are continuing their collaboration with one of Indonesia's largest state-owned banks, which manages over 100,000 agents around the country. The results from our study will enable us to answer pressing questions in anticipation of increased competition in the branchless banking market and how it affects agents’ preferences for price transparency. In a complementary experiment, we will also be able to estimate the return to the bank for investing in scalable strategies to increase price transparency to clients.