Supply and Demand Effects of Financial Incentives: Evidence from Branchless Banking Agents in Indonesia

Abstract: We study the effects of higher monetary incentives paid to frontline service providers and their impact on the take up of a new savings technology. The context is one of a large bank that hires local branchless banking agents to introduce a new savings account in a rural and largely unbanked area of Indonesia. These agents are (a) randomized into receiving a high vs. low piece rate for recruiting new customers, and (b) randomized into whether or not the piece rate is revealed to the community. We shed light on the supply- and demand-side effects of monetary incentives. we find that they are effective in increasing take-up only in settings where the information about the agent’s compensation is kept private. On the other hand, when these high incentives are public information, they convey a negative signal about the quality of the product, the agent, or the bank to potential clients, reducing the demand for the product. The effect is of the same magnitude as the supply side effect.