GSMA’s Mobile Money for the Unbanked (MMU) program recently released the report ‘Mobile Financial Services in Latin America & the Caribbean,’ spotlighting the region’s booming mobile money activity. I talked with the report’s authors, Mireya Almazán and Jenny Frydrych, to learn more about the project. The first half of our conversation, published last week, is available here. The second half of our conversation follows.
An enabling regulatory environment, as identified in the report, is one where the regulator has taken a functional and proportional approach that allows banks and non-bank providers to compete, as well as establish different types of partnerships for the provision of mobile money services. What does this means in practical terms, and how has or hasn’t Latin America and the Caribbean (LAC) met these conditions?
An open and level playing field that allows banks, mobile operators, and third parties to offer e-money is critical for mobile money to succeed. Anecdotal evidence, commercial lessons, and international regulatory principles all speak in favor of opening the market to providers with different value propositions and business models. Best practices are well established at both the regulatory and commercial level to guarantee the soundness of mobile money schemes, as well as the integrity and stability of the financial system.
As of April 2015, six of 19 (32 percent) mobile money markets in LAC have an enabling environment for mobile money, up from only two in 2012 (Nicaragua and Peru). These six include Bolivia, Brazil, Guyana, Nicaragua, Paraguay and Peru. Uruguay also has enabling regulation for mobile money and in fact issued the nation’s first e-money license to Redpago in April 2015; however, as Redpago has not formally launched, Uruguay is not categorized as a “mobile money market” in this report’s analysis.
Along with rules surrounding who can issue e-money, what other regulatory considerations are affecting whether mobile money markets in LAC can thrive?
Other regulatory considerations affecting whether mobile money thrives in LAC include:
- Minimum capital requirements are set as barriers to entering the financial market – in this case, more specifically, to the electronic money and payments market. The size of the minimum capital required in each country has the potential of shaping the competition of the market. Higher minimum capital requirements could mean fewer companies entering the market and vice versa. We are seeing different approaches within the region: Peru, Bolivia, and Brazil have set their minimum capital requirements a little below the US$ 1 million threshold. Colombia, on the other hand, set it at around US$ 2.5 million. Other countries, like Paraguay and Uruguay, have shown bolder approaches by not setting minimum capital requirements at all. It is still early to predict how this will shape each market, as the regulation in some of these countries was issued very recently and many of the companies aspiring to take part in the e-money market are still in the middle of the application process before the financial regulators.
- It is critical for regulators to adopt know-your-customer (KYC) requirements that are proportional to risks and not unnecessarily onerous for providers and consumers. Simplified and tiered KYC regimes have been embraced in Guatemala, Mexico, Paraguay, Colombia, and Peru. Some LAC regulators have gone an extra step and allow for paperless self-registration. Instead of registering through an authorized agent or point-of-sale, customers can dial a USSD code or access a STK menu, and enter basic personal information to set up their mobile money account. Brazil, Colombia, Mexico, and Paraguay allow customers to open their accounts in this manner. This method of account opening is most feasible in markets where a national identity registry exists so that customer information can be verified in real time on the back-end.
- Government support for financial inclusion is also a key regulatory consideration. Mobile money can deliver its financial inclusion potential faster when it’s part of a broader comprehensive national financial inclusion strategy. On one hand, setting common national financial inclusion goals allows governments to coordinate and align the different authorities in charge of regulating the various dimensions surrounding electronic payments. On the other hand, national financial inclusion strategies usually include measures designed to accelerate adoption and increase the use of mobile money. Some of these measures can include the commitment of the government to pay official salaries and public benefits using only electronic channels, or a set of special incentives to reduce the use of cash, for example.
Despite strong mobile money growth in recent years, the new Global Findex tells us that roughly half of adults in LAC still don’t have a formal bank account. What’re the next steps needed to ensure that the recent expansion of mobile services continues and that more individuals gain financial access?
Continued progress on creating enabling regulatory and policy environments for mobile money will be critical for sustained growth in this sector. An enabling environment is certainly not enough, but necessary if the industry is to untap the potential of mobile money in LAC.
Of course, continued investment from the private sector is also a must. In particular, on-going operational investment is needed to strengthen distribution networks and to communicate the value of the service to the target population.
Additionally, the GSMA believes ecosystem development is essential to onboarding new customers and making mobile money accounts more useful and relevant. The mobile money ecosystem can facilitate transactions from different sectors, such as retail, utilities, health, education, agriculture, and transportation – in addition to offering credit, insurance, and savings. A robust mobile money ecosystem allows customers to make and receive more secure, convenient, transparent, and affordable payments and financial services, encouraging them to keep mobile money in their accounts.
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