Can mobile money adoption induce microenterprises to formalize? Evidence from a field experiment in Burkina Faso

This paper examines whether mobile money innovation can induce microenterprises to formalize, an overlooked dimension in the informality literature. We leverage the unique case of Burkina Faso, where two types of merchant accounts coexist: Bronze account for informal businesses and Gold account for formal ones. In March 2021, we launched a quasi-experimental intervention introducing these accounts to 1,387 informal businesses. We find that prior experience with the Bronze account significantly increases the likelihood of formalization, especially when firms are later offered support to open a Gold account. Building on this, we conducted a randomized controlled trial (RCT) targeting two groups of businesses based on their initial (un)willingness to formalize, a novel segmentation in the formalization literature. Among willing businesses, support for opening a Gold account outperformed traditional financial incentives highlighting the effectiveness of financial infrastructure over temporary subsidies. In contrast, unwilling businesses were less responsive to any treatment, underscoring the importance of behavioural intent and trust. Overall, our findings highlight that formalization programs are more effective when tailored to firms' initial intent and prior financial experience. They emphasize the value of sequenced interventions that build on existing behaviours, offering practical insights for designing inclusive fintech strategies in low-income settings.