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December 19, 2011

Mobile payments get going in LatAm

In January 2011, MasterCard and Spains Telefnica signed an agreement to offer mobile financial services to the 87m subscribers of Telefnicas Movistar mobile subsidiary in 12 Latin American countries

By Verdict Staff

Two rival alliances between major telcos and financial institutions are set to drive mobile payments in Latin America. Robin Arnfield looks at two high-profile JVs – one between MasterCard and Telefónica, the other bringing together Citigroup, América Móvil and Grupo Financiero Inbursa

 

In January 2011, MasterCard and Spain’s Telefónica signed an agreement to offer mobile financial services to the 87m subscribers of Telefónica’s Movistar mobile subsidiary in 12 Latin American countries. The two companies have formed a 50-50 joint venture called Wanda to operate the services.

MasterCard and Telefónica’s joint venture will face strong competition from an initiative involving Citigroup, Latin American mobile carrier América Móvil, and Mexico’s Grupo Financiero Inbursa (América Móvil and Inbursa are both owned by Mexican entrepreneur Carlos Slim Helú).

In October 2011, the three companies formed a $50m joint venture called Transfer to offer mobile financial services across Latin America. Transfer will initially offer services to customers of Citi’s Mexican subsidiary Banamex, América Móvil’s Mexican mobile subsidiary Telcel, and Inbursa, starting in the first quarter of 2012. América Móvil has 236m mobile customers in 18 countries.

Both Wanda and Transfer aim to bring mobile banking services to unbanked Latin American consumers. “Around 75-80% of the population in Latin America has cellphones,” says Richard Speer, chairman of US consultancy Speer & Associates. “But only 33-40% of Latin American households have bank accounts. The market research we conducted in several Latin American countries revealed a very high demand for mobile financial services among banked and unbanked customers,” says Pablo Montesano, chief marketing and sales officer at Miami, Florida-based Wanda.

“Domestic remittances within Latin American countries cost 10-15% of the transfer, and microcredit agencies can charge interest rates of over 80%.

“Since the unbanked rely solely on cash, it’s difficult for them to prove their income and build credit histories. Mobile money provides an answer to these inefficiencies.”

 

 

Box explaining the Movistar credit card dealWanda

In June 2011, Richard Hartzell, president of MasterCard Latin America and Caribbean (LAC), told Business News Americas that Wanda’s intention was “to be functioning in various markets by the end of 2011”.

Montesano declined to give an exact date for commercial rollout, but said: “We are moving to final technological and operational tests in some of the countries in line with Richard Hartzell’s comments.”.

“The initial offering consists of a basic portfolio of services based on a prepaid mobile wallet, including person-to-person transfers, mobile airtime top-up, and bill payment.”

According to Montesano, Wanda plans to adopt an open-platform approach offering interoperability with multiple carriers.

“We are committed in the long term to a multi-partner approach, although initially we are only working to activate Movistar’s customer base,” he says.

Adopting an open-platform model means Wanda will be able to facilitate fund transfers between unbanked and banked consumers.

“Because our m-wallet is open-loop, it will be integrated with existing payment systems, so funds can flow freely between the banked and unbanked,” Montesano says.

“We have a favourable view of sharing with other mobile money schemes the burden of financial education [about mobile money], building cash in/cash out networks, and supporting the introduction of mobile money regulation.”

Montesano says Wanda is pursuing a multi-bank approach, with partnerships with banks being on a non-exclusive basis.

“Since Wanda only acts as service provider and enabler and doesn’t intend to become a financial institution, banks play a critical role in our business,” he says.

“There are several possible roles banks can take, including: issuing m-wallets to their existing customer base; managing the funds stored in m-wallets; and providing financial products to m-wallet customers.”

“I envisage Wanda offering its platform to small banks or microfinance institutions that cannot afford to develop their own m-payment services,” says Álvaro Martín Enríquez, a partner at Madrid, Spain-based consultancy Analistas Financieros Internacionales.

Currently, in most Latin American countries, regulators require mobile money or prepaid card issuers to involve a bank, adds Enríquez. However, in 2010 Mexico passed a law stating that e-money issuers do not need to be banks.

Peru has drafted similar legislation, expected to become law in 2012,” Enríquez says.

Table showing all the MasterCard credit/debit/charge card programmes in Latin America

 

Cash replacement

MasterCard and Telefónica said in January 2011 that Wanda plans to offer m-payments in segments such as taxis and small merchants that currently only accept cash.

“Currently, it isn’t economically viable to provide POS terminals to small merchants who handle only low-value transactions,” says Montesano.

“But these informal merchants have cellphones, which can be used to enable cellphone-to-cellphone transactions.

“So m-payments will be very beneficial to them, offering greater security than accepting cash, and helping them increase their sales volumes, for example with customers who aren’t carrying cash.”

Montesano says Wanda plans to offer NFC payments for on-premise purchases, once NFC-enabled devices and POS infrastructure become widely available. Wanda also plans to offer prepaid cards.

“We believe physical and virtual prepaid cards can be a strong complement to m-wallets,” Montesano says.

 

Brazil

In November 2011, MasterCard and Telefónica announced a 50-50 joint venture to provide mobile financial services to the 68m subscribers of Telefónica’s Brazilian subsidiary Vivo.

The new company, which is subject to Brazilian regulatory approval, will provide subscribers with m-wallets offering similar services to those provided by Wanda. However, it will be a separate entity from Wanda.

MasterCard and Telefónica say the initiative will aim to encourage the acceptance of m-payments in locations that traditionally have only accepted cash, such as taxis and delivery services.

Separately, since December 2010, MasterCard has been running an NFC payment and mobile remittance pilot in Brazil with Brazilian bank Itaú Unibanco, acquirer Redecard and Vivo.

The MasterCard Mobile pilot enables Vivo subscribers to link their Itaú MasterCard credit or debit card to their cellphone for retail purchases, airtime reloads, and, through a partnership with Philippines telco Smart, remittances to the Philippines.

 

América Móvil

“Telefónica is not as big in Mexico as América Móvil, whose Telcel subsidiary is the dominant Mexican mobile brand,” says Speer.

He predicts that Transfer will see significant transaction volumes in the second half of 2012, with a massive ramp-up in 2013 and 2014.

América Móvil aims to have 15% of its Latin American mobile subscribers using Transfer in four years.

“América Móvil’s 236m customer base compensates for Citi’s lack of presence in Latin America outside Mexico and Central America,” says Speer.

América Móvil says that other Latin America telcos’ can join Transfer. “It is aggressively developing its plans to roll out Transfer to the rest of Latin America,” says Speer. “I think América Móvil’s aggressive approach will encourage Telefónica not to get left behind.”

 

Barriers

Wanda’s Montesano says two factors are inhibiting the development of m- payments.

“Firstly, the region lacks an adequate regulatory environment to foster mobile money-based financial inclusion, although several countries have made important steps in this direction,” he says.

“Risk-adjusted anti-money laundering and know-your-customer requirements need to be introduced that recognise lower-income consumers’ specific characteristics such as lack of ID and lower transaction volumes.

“The second factor is the need to set up extensive and liquid cash in/cash out networks to support mobile money services.”

“The real challenge in setting up the MasterCard-Telefónica deal is not technology but organisational issues, for example how to work out revenue-sharing,” says Speer.

“Preventing fraud from customers’ m-wallets and complying with the varying regulatory regimes in force for banks and telcos in Latin America will also be big issues.”

Given that the bulk of mobile money transactions will be for low-value purchases by consumers on low incomes, user fees must be kept very low, says Speer.

“América Móvil and Citi say they will charge the local currency equivalent of 7-15 US cents per transaction,” he adds.

Speer is bullish about the potential market in Latin America.

“I expect m-payments to develop very fast, given the size of América Móvil and Telefónica’s mobile customer bases,” he says. “Both Mexico and Brazil will see the biggest m-payment volumes in the region.”

Over the past five years, there was a lot more talk about m-commerce by Latin American telcos than action, Speer says.

“It is Visa and MasterCard which have galvanised the telcos to take action,” Speer adds. “MasterCard and Visa are both very proactive in m-payments in Latin America.”

According to Speer, Visa’s $110m acquisition of South African m-payment platform vendor Fundamo and its partnership with m-banking firm Monitise are very significant for Latin America.

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