> Posted by Lindsay Lehr, Senior Director, Americas Market Intelligence
In Latin America, where 70 percent of people do not have a bank account, both the public and private sectors have honed in on financial inclusion as a strategic objective for growth. Mobile financial services for the unbanked have flourished in the region since 2007—there are nearly 40 live mobile money platforms, with five new launches in 2015. However, while mobile money efforts have been successful in Africa, uptake is dismal in Latin America, despite concerted efforts by every major telecom and bank to push such services out to users. Of 480 million adults in Latin America, there are a mere 15 million registered mobile money users (3 percent penetration), of which, only 6 million were active in the past 90 days. Deficient agent networks, technological illiteracy, non-interoperability, and the plain old convenience of cash can all be cited as reasons for poor mobile money penetration.
As a result, most mobile money services in the region are yet not profitable, causing some providers to move away from the unbanked. In a recent interview with Electronic Payments International, Miami-based technology provider YellowPepper noted, “Providing banking services to the unbanked wasn’t paying enough for us to survive, so for the time being we’ve left that market.” Banks and card networks are notably dedicating resources to launch services for their banked customers, including mCommerce mobile wallets and contactless merchant payments.
But providers may be missing out on the most forward-looking opportunity. Almost all mobile money platforms worldwide are developed for feature phones, under the assumption that the unbanked cannot afford smartphones. But smartphone penetration in the region was at roughly 40 percent in 2015, totaling about 156 million, and forecasted to grow 12 percent annually through 2019. This is much faster than the rate of bank product adoption by the unbanked; in Colombia this rate grew only 2 percent annually from 2011-2015. By 2019, 73 percent of Chileans will have smartphones; in Mexico, 70 percent. Meanwhile, the number of unbanked will not have noticeably budged. This means that the ranks of unbanked Latin Americans using a smartphone are growing, and quickly.
Mobile money operators, who are focused on low-tech interfaces for feature phones, may be developing the wrong types of products. Unbanked smartphone users are an entire demographic for which financial inclusion products have not been developed. Indeed, one self-admitted flaw of Peru’s soon-to-launch mobile money service, BIM, is that it is clumsy and slow for smartphone users who are used to flipping seamlessly between apps. Considering the rapid projected growth of smartphone penetration, mobile money services may become obsolete before they even become mainstream.
Growth of smartphone usage aside, there may be another reason to target more high-tech consumers. Mobile money uptake has been so low in part because its main users are marginalized, poorly educated, and highly suspicious of banks and technology. But the unbanked population is diverse and includes young, lower-middle class urban dwellers, who in many cases have smartphones. These users are more tech-savvy and adaptive than feature phone users, and thus are more likely to trade in old behaviors for new ones. With regard to mobile money, smartphone users would be more inclined to trust that their cash is stored safely in their phone and be more excited about sending money to friends electronically than their feature phone counterparts.
Nowadays, the smartphone is the mechanism by which behaviors change and old patterns are disrupted; it has transformed how we communicate, shop, bank, and even hail taxis. Theoretically, if unbanked smartphone users—who are richer, better educated, and more included than feature phone users—adopt mobile money, they will want to use this technology to transact with their feature phone user friends, encouraging them to also use the service. Instead of working from bottom up with the most financially excluded, mobile money providers would be wise to let smartphone users push the service to the bottom of the pyramid for them.
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