Technology Adoption and Leapfrogging: Racing for Mobile Payments

Abstract

Paying with a mobile phone is a cutting-edge innovation transforming the global payments industry. However, some advanced economies like the U.S. are lagging behind in mobile payment adoption. We construct a dynamic model with sequential payment innovations to explain this puzzle, which uncovers how advanced economies' past success in adopting card-payment technology holds them back in the mobile-payment race. Our calibrated model matches the crosscountry adoption patterns of card and mobile payments and also explains why advanced and developing countries favor different mobile payment solutions. Based on the model, we conduct several quantitative exercises for welfare and policy analyses.