Latin America, with its high cellphone penetration and low bancarisation levels, offers huge potential for mobile banking and payment services. But Latin American banks seem to be slow at embracing the opportunity, Robin Arnfield reports
"Three characteristics suggest a favourable climate for Latin American m-banking growth," says Deloitte’s report, The future of mobile banking in Latin America: Insights from Argentina, Brazil, Mexico. "First, the region’s economies are advancing rapidly, leading to personal income growth. Second, there are millions of consumers who have yet to fully participate in the banking system, and these underbanked segments represent a large body of potential new customers for banks. Third, mobile culture is already rooted in the region."
In Brazil, Mexico and Peru, only 40%, 27% and 30% respectively of the population had bank accounts in 2011. "Mobile penetration is approaching 100% in all Latin American and Caribbean (LAC) countries, mostly comprising basic cellphones with no Internet access," says Dave Donais, Scotiabank’s vice president, emerging business and payments.
A characteristic of the Latin American banking industry which will drive adoption of mobile financial services by the unbanked is non-bank correspondent agent networks. In Brazil, Colombia, Mexico and Peru, for example, correspondent agents such as convenience stores are allowed to provide banking services on behalf of banks, such as opening basic bank accounts, cash deposits and withdrawals, and bill payments. By partnering with correspondent agent networks, m-payment services targeting the unbanked can provide their m-wallet users with cash-in and cash-out facilities, says Dan Armstrong, a partner at Amsterdam-based Takashi Mobile Financial Services.
Flavour of the month
"M-payments for the unbanked is ‘flavour of the month’ in Latin America now," says Armstrong. "There’s a huge amount of policy being formulated by NGOs and frequent m-payments summits in Latin America, as well as a lot of funding for initiatives. Latin American governments see m-payments as driving financial inclusion. But there’s a discrepancy between governmental and NGO support for m-payments and the actual number of services on the ground in Latin America."
Latin America is lagging behind other regions such as Africa in terms of mobile money rollout, says Thor Hauge, vice president of business development at Western Union Digital. "Kenya’s M-Pesa is so successful that it has raised the bar very high for other countries," he says. "Latin America has the right characteristics to benefit from mobile money adoption, such as low banking penetration and a high level of rural, geographically-dispersed communities. But it’s taking longer for Latin American countries to get organised."
"Banks in other regions are moving more quickly than Latin American banks towards m-payments," says Mary Gramaglia, director of mobile commerce sales, Latin America, at software vendor SAP. "In general, Latin American banks haven’t yet embraced the potential of unbanked consumers. They’re still trying to work out a better mobile strategy for their existing banked customers."
"If Latin American banks can get low-income customers to access their accounts via cellphone, they can get people out of the branches and reduce their staffing numbers," says Janice Horan, LAC pre-sales director at US-based cards analytics firm FICO.
"While Latin American banks realise m-banking is a lower cost way to reach the unbanked, they’d rather sell more products to their existing customers, or win middle-class customers from other banks, than target the unbanked," says Gramaglia.
However, banks in different Latin American regions vary in their attitude to the unbanked, says Gramaglia. "Central American banks pay attention to the unbanked because of Central America’s socio-economic situation with high levels of poverty and very low banking penetration," she says. "For example, Guatemala’s BanRural has partnered with Latin American mobile carrier América Móvil’s subsidiary Claro to target the unbanked in Guatemala. However, banks in more developed countries such as Chile and Argentina have shown less interest in the unbanked."
Gramaglia says offering cardless ATM access from m-wallets provides a way for Latin American banks to reach the unbanked. This involves a bank enabling its m-banking customers to transfer funds to unbanked consumers’ cellphones. The recipients are sent a PIN which they can use in combination with their cellphone number at the bank’s ATMs which have been enabled for cardless cash withdrawals. "SAP is working with one of the largest banks in Central America on a cardless ATM access solution," Gramaglia says.
"M-banking usage by banked customers is still low across Latin America, although the rise of smartphone ownership in the region will accelerate m-banking adoption, says Horan. "It’s much easier for banks to deploy smartphone banking services than to set up m-banking channels for basic cellphones using SMS or USSD (Unstructured Supplementary Service Data)."
USSD is a protocol enabling GSM-based basic cellphones to communicate in real-time and free of charge with a service provider’s computers.
"All the major Mexican banks offer smartphone banking, but there aren’t a large number of m-banking users yet," says Pedro Solana, a director at Citigroup’s Mexican subsidiary Banamex.
In 2012, BBVA Bancomer, Mexico’s largest bank, had 1.2m m-banking users out of a total customer base of 20m.
Brazil is seeing the fastest growth in m-banking across Latin America. According to Brazilian banking industry association Febraban (Federação Brasileira de Bancos), the number of chequeing accounts accessed by mobile devices rose from 3.3m in 2011 to 6m in 2012. Bradesco, the second largest private Brazilian bank, says that its mobile banking users grew by 100% year-on-year to 2m in March 2013.
"There’s a big difference in Brazil between the cities where everyone has a smartphone and all the banks are launching smartphone apps, and the rural areas where people only have basic cellphones," says Armstrong. "If the Brazilian banks offered USSD banking as well as smartphone banking, they would triple their mobile banking customer numbers. In Paraguay, only 2% of the population has a smartphone, so the banks have to offer USSD-based m-banking for basic cellphone users."
Although all the major Peruvian banks offer m-banking services, m-banking only accounted for 0.1% of total Peruvian banking transactions in 2012, says Peruvian banking association ASBANC (Asociación de Bancos del Perú). In the first half of 2012, Colombians carried out 1.12m m-banking transactions, representing 0.13% of the total country’s 922.82m banking transactions in that period, Colombian banking regulator Superintendencia Financiera de Colombia reports. ASBANC’s and the Superintendencia’s figures exclude balance and transaction history enquiries.
Many of the national EFT switches in Latin American include m-banking capabilities, says Armstrong. "It makes sense for smaller banks wanting to roll out m-banking to use their national switch’s m-banking platform," he says. "However, banks that want to differentiate their m-banking service from other banks will use their own technology platform, rather than a common platform provided by the switch."
"Colombian processor Redeban, which is owned by 13 of the biggest Colombian banks, offers a hosted m-banking and payments solution to the banks," says Gramaglia. "For example, Redeban hosts DaviPlata (DaviCash), an m-wallet service offered by Banco Davivienda, and Banco AV Villas’ m-banking service."
"The Colombian government has an initiative to migrate recipients of its Familias en Acción (families in action) social benefits program from cash pay-outs to mobile transfers," Gramaglia says. "It’s working with Davivienda to pay Familias en Acción subsidies to recipients’ DaviPlata accounts."
"Increasingly, LAC government welfare programs will use the mobile payment channel and agent networks to facilitate disbursement of social benefits to recipients," says the International Finance Corporation (IFC) in a presentation on LAC market trends.
Hauge says m-payment services for the unbanked face two challenges. "Firstly, there is the consumer adoption curve for mobile money," he says. "If consumers have always dealt with cash, and then they’re offered m-wallets, will they trust the service provider? Personal relationships will play an important role in building confidence in mobile money services, for example if cellphone subscribers are signed up for m-wallets by the street vendor who sells them their airtime."
"M-payments are still in their infancy in Latin America and the Caribbean," says Carlos Cornejo, MasterCard Worldwide’s regional head, core products, LAC region. "Efforts to educate Latin American consumers on the value of m-payments are pivotal in increasing their willingness for adoption."
Another challenge is the fact that some Latin American regulators have yet to introduce legislation for m-payments, Hauge says. "The lack of regulations in some countries is holding back rollout of m-payment services, as providers are waiting for legislation to be prepared and implemented," he says. "Western Union won’t launch a mobile remittance service in markets where m-payments regulations haven’t yet been formulated. For example, we’re looking at offering mobile remittances to Brazil, where we hold a banking licence through Banco Western Union do Brasil. But Brazil recently proposed a regulatory framework for m-payments, so we’ll wait until the regulations have been decided."
"Without effective regulations, m-payments won’t take off," says Gramaglia. "For example, Bolivia would be a good market for m-payments. However, Bolivia doesn’t have regulations that would induce companies to launch m-payment services there."
Peru is an example of a Latin America country which is developing effective m-money regulations catering for the unbanked, Gramaglia says. In December 2012, Peru’s Congress passed an Electronic Money Law (Ley de Dinero Electrónico), which creates a regulatory framework for non-banks to issue m-wallets. "The unbanked are front of mind for the development of m-banking and payments in Peru, which I don’t see in any other Latin American country," says Gramaglia.
"There are different m-payments implementations in Latin America, depending on the regulations in place in individual countries," says Armstrong. "In some countries, a bank needs to be involved in any m-payments venture, and in other markets banks aren’t required."
Gramaglia says Colombia doesn’t allow non-banks to offer m-payment services. "While Colombian banks offer m-banking services for the banked, Colombia hasn’t created regulations to facilitate m-banking for the unbanked, as Peru has done," she says.
"Haiti’s TchoTcho Mobile m-payments service is based on a bank-led model," says Hauge. TchoTcho Mobile was launched in November 2010 by mobile carrier Digicel, Canada’s Scotiabank and US-based m-payments firm YellowPepper. By July 2012, TchoTcho Mobile had 900 agents and over 500,000 users who had carried out 5m transactions since the service’s launch.
"Mobile carrier Tigo, which operates mobile payment services in El Salvador, Guatemala, Honduras and Paraguay, is an example of a telco-led model," says Hauge. Western Union offers mobile remittances from around the world to Tigo m-payment users in El Salvador, Guatemala and Paraguay.
According to the Gartner report, Market Trends: Mobile Payment, Worldwide, 2012, of Tigo’s four Latin American m-payment services, only its Paraguayan service, Giros Tigo, has captured a meaningful number of users. Gartner says Giros Tigo had 15% of Tigo’s Paraguayan mobile subscriber base in the first quarter of 2012.
"Currently, Paraguayan banks only offer m-banking services to banked consumers," says Juan Carlos Spiess, marketing and channels/products manager at Paraguay’s Banco Regional, which launched an m-banking service in March 2013. "Two Paraguayan mobile operators, Tigo and Personal, offer m-wallets to the unbanked, enabling them to pay bills, top up airtime, and transfer funds to other people. As yet, there is no mobile money legislation in Paraguay. However, Paraguay’s banking regulator, Superintendencia de Bancos, and its banking industry association, Asociación de Bancos del Paraguay, are developing legislation specifying how banks and telcos should collaborate on mobile money."
In May 2013, Mobile Financial Service (MFS), a Brazilian joint venture between MasterCard and Spain’s Telefónica, launched a pilot of Zuum in five cities in São Paulo State and in Belo Horizonte, capital of Minas Gerais State. MFS is a separate initiative to Wanda, the joint venture between MasterCard and Telefónica which is developing m-payment services targeting the unbanked in 12 Latin American countries excluding Brazil.
MasterCard Mobile Payments Readiness Index
Brazil and Mexico are the two Latin American countries most ready to embrace m-payments, according to MasterCard’s Mobile Payments Readiness Index, published in May 2012. Brazil scored 33.4 in terms of m-payments readiness, Colombia, 32.4, Mexico 27.7 and Argentina 24.0.
According to Euromonitor and the ITU (International Telecommunications Union), in 2010 there were 32.2m cellphones in Colombia and 30.4m credit, debit, store and prepaid cards in the country, giving a ratio of 1.3 cellphones per payment card. This contrasts with a ratio of 0.3 cellphones per payment card in Brazil and 0.8 in Mexico.
For its Index, MasterCard surveyed 34 countries, evaluating their readiness for mobile P2P payments, mobile e-commerce, and m-payments at the point of sale in terms of six criteria: consumer readiness to adopt these three payment types; economic, demographic and technological environment; level of financial services development; mobile communications and NFC infrastructure; regulations; and mobile commerce joint ventures and partnerships between telcos, banks, governments and other players. Singapore came top of the list with 45.6, followed by Canada with 42.0, the US with 41.5 and Kenya with 40.4.
"In Latin America, consumer willingness to adopt m-payments varies by market and different consumer factors," says Carlos Cornejo, MasterCard Worldwide’s regional head, core products, LAC region. "In Colombia, we found that consumers’ willingness to adopt m-payments increases with age, while in Mexico it increases with consumers’ level of affluence. Our research also identified that, in order to further m-payments in Latin America, partnerships among key m-payments players such as banks, telcos and governments need to be strengthened."