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 Jennifer Frydrych, to learn more about the project. The first half of our conversation follows. The second half of the conversation will be published in the coming days.
One of the headline messages of the new report is that the mobile money market in Latin America and the Caribbean (LAC) is the fastest growing of any region in terms of account ownership. How do the numbers look?
Collectively, the 37 mobile money services in the region account for roughly 15 million registered mobile money accounts and 6.2 million accounts that have been active within the past 90-days. Notably, LAC witnessed a 50 percent growth rate in the number of new registered mobile money accounts between December 2013 and 2014, making LAC the world’s fastest growing region in new accounts. LAC’s users are more active than the global average active customer rate (42 percent of all accounts are active, compared to 35 percent globally). Most encouragingly, there are now five deployments in LAC with over a million registered customers. Each of these deployments counts at least half a million 90-day active customers, and together they cover an extremely diverse set of markets.
The three markets that stand out in the region are Paraguay, Honduras, and El Salvador. These three markets all feature in the top 15 globally for mobile money account penetration (number of active mobile money accounts divided by total adult population).
To date, mobile money has largely been used for airtime top-ups and domestic money transfers (P2P). Is this what we’re seeing in the LAC region?
There are some important differences. Over a quarter of all transaction volumes (the volume of money transacted) in LAC were from ecosystem transactions with third parties—such as bill payments, bulk payments, and merchant payments—up from just 14 percent in September 2012. By comparison, in East Africa—home of the world’s most successful mobile money deployments in terms of uptake, volumes, and transactions—only 6 percent of all transaction volumes over the same period were considered ecosystem transactions. Ecosystem transactions are critical to realizing the full potential of mobile financial services, although they are traditionally the most difficult products to gain traction in a mobile money market.
We’re not necessarily looking at a copy/paste scenario of East Africa’s P2P success, as the figure shows.
What are the factors driving expansion?
Three factors that may be contributing to the growth include:
- Offer of products tailored to use cases that meet customer needs: For example, in El Salvador—one of the most densely populated countries in the region—Tigo Money is gaining traction through bill payments and international remittances. Bill payments are relevant for much of the adult population, and international remittances constitute 18 percent of El Salvador’s GDP. Identifying customer painpoints in each market is critical to drive services enrollment and usage.
- Greater investment from mobile money providers: Setting up a mobile money service is extremely hard work, even for mobile operators that already have high penetration rates on voice and data services. As the GSMA’s profitability research indicates, operators will incur heavy losses in the early years to acquire customers and build a distribution network, and will need to invest in the service for roughly three years before breaking even. We’re beginning to see more patient capital flow to the sector.
- A gradual regulatory shift to allow non-banks to offer e-money: While LAC is ranked as the lowest region in the world when it comes to regulation of e-money, considerable progress has been made in recent years. Four LAC markets adopted enabling regulatory frameworks between 2012 and 2015. Greater regulatory clarity has contributed to the growth of e-money services, though there’s still a long way to go.
The report highlights that LAC hosts a greater diversity of mobile money business models than any other region. What are the models we’ve seen take root in LAC, and what’s influencing these approaches?
Given the diversity of markets in the region, there is no one-size fits all commercial model for mobile money in LAC. At one end of the spectrum are models akin to those in East Africa, where a mobile operator assumes most of the functions in the value chain (e.g. Tigo in Central and South America, Digicel in the Caribbean). At the other end of the spectrum, banks drive mobile money schemes and, in some cases, have even invested in mobile virtual network operators (MVNOs) to one day offer mobile financial services independently of mobile operators (e.g. Bancolombia). Finally, new entities dedicated to mobile payments, including joint ventures between mobile operators and financial institutions or payment processing companies, are an alternative approach to mobile money in the region (e.g. Transfer, a joint venture between América Móvil and Citibank in Mexico; and MFS, a joint venture between Telefónica and MasterCard in Brazil).
The paper divides the region into two different market archetype categories. Type I markets—the poorest countries in the region with relatively low banking penetration rates, such as Bolivia, El Salvador, Guatemala, Honduras, and Paraguay—are characterized by mobile operators taking the lead in launching mobile money services to fill a banking infrastructure gap. Mobile money deployments in these markets tend to resemble those that have been successful in East Africa.
Type II markets—relatively wealthier LAC markets with robust banking sectors, such as Brazil, Mexico, and Panama—have produced a range of integrated partnership models involving operators, financial institutions, retail chains, and others. Banks and retailers are deeply rooted in these economies and are strong contenders to become mobile financial services leaders in their respective markets. Companion cards (stores of value and payment cards to accompany mobile phone use) are common, as well as integration with existing banking infrastructure.
Peru and Ecuador have unique mobile money set-ups. Could you tell us about these models?
In Peru, based on an initiative of the Association of Banks (ASBANC), a group of banks, non-bank financial institutions, and e-money issuers are preparing to launch an open and interoperable e-money platform, with a unified value proposition for consumers. To facilitate the implementation and future administration, these partners have created a new company, Pagos Digitales Peruanos (PDP) S.A. For cash-in and out, PDP will leverage Peru’s existing network of banking agents, in addition to building more service points. Merchants and agents will be fully interoperable, and the goal is to reach about 20,000 shared agents. PDP is fully financed by its partners, who mobilized an initial investment of US$10 million. The project manager has shared that PDP expects to reach five million Peruvians within five years of launching. PDP expects to go live very soon in 2015. Once launched, this multi-tenant interoperable financial industry-led scheme would be a world first.
The Ecuadorian approach to mobile financial services is government-led. The Central Bank of Ecuador (CBE) established itself as the sole e-money issuer in the country. Customers in Ecuador will now be able to open an e-money account at the CBE. Distribution, however, will be a collaborative effort of the public and private sector. CBE will contract with banks, financial cooperatives, credit unions, payment networks, and local mobile operators to build agent networks. This emerging e-money model in Ecuador demonstrates the complex interplay between commercial and government interests.
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