 | Issue: | Latin America 2014 |
| Article no.: | 1 | |
| Topic: | Mobile money and banking in Latin America | |
| Author: | Pilar Aurrecoechea | |
| Title: | Global Financial Services Director | |
| Organisation: | Telefónica | |
| PDF size: | 219KB |
About author
Pilar Aurrecoechea joined Telefonica as Global Financial Services Director in October 2013, where she is in charge of driving Financial Services at a corporate level with business P&L responsibility, defining the strategy and developing the Financial Services to be marketed across the global company footprint. Services include: Insurance, Microcredits, Cobrands, Payment Services and the Commerce Strategy.
Pilar joins Telefónica from MasterCard, where she was General Manager and responsible of the MasterCard branch in Spain and Portugal. Prior to that, she worked at Visa Europe where she was in charge of the Consulting Business across Europe. She also worked in Caja Madrid responsible of the Issuing and Acquiring Business and in American Express.
Pilar studied in the USA and has a Master in Business Administration and a Bachelor degree in Mathematics.
Article abstract
Mobile Money has a very close relation to Banking activities, considered as deposit of value, with the impact of safeness considerations. But on the other hand we consider Mobile Money as a currency valuable to exchange goods, then to play payments or commerce on any level. There comes the second side of relationship with the economy of transactions. Letting users purchase things and convert a deposited value into a life experience.
Full Article
Not surprisingly among the 242 mobile money initiatives up and running declared in the Mobile Money Tracker (http://www.mobileworldlive.com/mobile-money-tracker) there are 32 operating in LATAM.
Mobile Money is still a challenge for everyone in the region, from Banks that were capable of enrolling only 40-60% of the population depending on the country, to Government with a heavy responsibility to build both an efficient system capable for assigning taxes and to distribute wealth in a more efficient, then to contribute to economic development. It is a fact that banking as usual will not penetrate to cover the vast economy as it did in most developed countries. Telecommunication companies are the missing link to gather all groups.
We commonly agree, in my opinion, the real challenge of Mobile Money comes to the table when competing with cash payments, yes, old cash, coins and notes. Now any telco, or bank, or tech solution proposed to a fast evolving market need to solve daily basis problems related to transactions. Problems that go beyond opening a bank account and sending money, things like that are already solved for an average consumer. Let’s take a look at the real competitor.
Cash is physical, reliable, simple, inexpensive (!?), convenient, privacy conservative, trustworthy and relatively safe to use(!?). Building a Mobile Money service has to compete with its strengths and cover those use cases where can become simpler, cheaper, more convenient and much safer than cash. It is not easy but possible as it was demonstrated in some regions on Africa.
Some of the characteristics of cash are in fact false, in average producing and moving cash has an average cost of US$300 per inhabitant (http://thefinanser.co.uk/fsclub/2012/03/is-there-a-future-for-cash.html ), and even worse the cost of cash shows their worst face of unbalance, taking the bad part to those accessing the systems from the lower base of the pyramid, charging US$2 for the usage of an ATM for a withdrawal of US$200 can be acceptable, but a withdrawal of US$20 has an impact of 10% value. Examples like this creates a gap from banking users aiming to pay fees as we know them, and a big mass of potential users underbanked renouncing to services to progress.
One the flaws of cash is as credit facilitator in two aspects, on one hand, it is very complicated to measure credit risk when there is no written record (cash hasn’t), and on the other hand, the difficulty to charge small fees when repayment is applied (probably the microfinance institutions hardest task).
We acknowledge the Mobile Money ARPU (average revenue per user) is never to become as big as a banked user, that’s why Banks did not cover all population. Nevertheless chances are huge for nearly 300 million unbanked and underbanked people in LATAM.
Mobile Money opportunity we are addressing is all about, long term opportunity with a start point that is more competitive that the one initially found in Africa.
In other parts of the world the situation was much different, Africa is the paradigm, Kenia, Tanzania and Uganda with bank networks almost inexistent made very difficult for inhabitants to manage currency present and remotely. Then the Mobile Network Operators (MNOs) found a way to use airtime as an equivalent of currency, initially without cash-out, and later on open to new use cases.
Rest of the history is well known, in 2013 equivalent of one third of Kenia GDP was sent over Mobile Networks and generated 18% of M-Pesa revenues reaching 88% penetration of their customer base. Impressive data. Real disruption.
Can we imagine similar figures applied to LATAM MNOs?
In LATAM, fortunately the start situation is better, from Bank penetration to Regulator position. Regulation on Banking and Telecommunications activities, typically played by different institutions in most of the countries is taking a position of wait and see. Letting players start operations and prepare the soil for a next generation of services.
Incumbent bank networks (issuers and acquirers) are a great asset in the Region, either to cooperate or to compete if that’s their thought. Unbanked and underbanked people are willing to play in the big field, therefore any Mobile Money solution needs to bridge between cash-only payments and purchases to the more sophisticated electronic payments, both online and offline. Financial inclusion means closing the gaps, build the steps to let customers grow and facilitate financial inclusion to more evolved financial service: credit, insurances, and other banking product delivered by Banks. Time to discover where the value is created and grown.
One the factors that accelerate the deployment of Mobile Money is Interoperability, so users won’t worry to use services to any party moving to a wider space that could finally move into the open loop payment scenario to include the big part of banked people. Interoperability should boost penetrations and awareness of Mobile Money services, no doubt.
On the other hand, interoperability can play as a hurdle when set at wrong conditions. The problem is when it comes heavy regulated or simply mandatory at a too early stage of the market where it can delay adoption by slowing initiatives to be compliant with regulation. Other important fact is the way interoperability can affect different players depending on their market penetration, condition of their customer base or simply the technology used to deliver. But this is a different frame of discussion.
Even though the Mobile Money opportunity is huge, Mobile Money value proposal has to be perfectly adapted to the many constrains defined in each country. From acquiring networks, commissions, language, currency, and so on. There is no one solution for all. Each market has their preferences, and their competitors. Any attempt to address Mobile Money opportunity is complex in its birth.
We typically consider value proposal to final customers, but that’s not enough, especially when it is happening in a region where the most advanced payments technology is already deployed at some level, EMV, NFC, QR, applied to transport, to security, etc. Rest of the players and moving very fast: remittances, acquirers, retailers, transport, government, etc. Delivering is part of the challenge.
Until now he have not implied technology, except to express it must be mobile and multichannel. Technology is a media. From Telefonica perspective with over 30% smartphone penetration in Brazil, the solution for any Mobile Money approach has to be compelling to all type of users, we already know most of the smartphone users and banked (or maybe not).
Thus technology from a user perspective must cover from very basic usage (USSD, SMS, IVR) to well design applications and web pages to accommodate all levels, including those on the edge of banking features with non-banking connections.
When it comes to speak about financial inclusion we would love to hear its adoption will be very fast, and it will be, but relatively. Let put the comparison of banking reaching 40-60% of population in 400 years period. Compared to Mobile Money that took less than one decade to reach mass in Africa.
Obviously, it is worth to remember any of the success cases deployed in the world took several years and implied enormous amounts of investment to be significant in the market.
Financial inclusion is achieved via convenience, letting funds flow well within the mobile money experience better than moving into cash at the first obstacle. Consider the huge amounts of funds that every Government distributes every day to cover different needs from pensions, social care, public employees, etc. Many of these uses end in contact with underserved conversion of “G” funds into cash, so taxes fade away and at the end may help laundering money originated in irregular sources. It is a weird use of any currency.
All over the world Cash is still the king, even in the most mature and banked markets, with ratios of 50% of commerce transactions made in cash, even when both parts are electronic payments prepared. Cash is king, but of which kingdom?.. ( http://www.finextra.com/blogs/fullblog.aspx?blogid=9516 )
Regarding final appearance of Mobile Money, people use to think in Mobile Wallets, but, are merchants adapted to pay with a mobile “thing”? not at all. We need to provide some advantage in front of cash. Again solution comes from other insights, like some services do with domestic remittances, or bill payments, where the saving of time and smoothness of the solution help in creating a new habitude.
Mobile Money has a very close relation to Banking activities, considered as deposit of value, with the impact of safeness considerations. But on the other hand we consider Mobile Money as a currency valuable to exchange goods, then to play payments or commerce on any level. There comes the second side of relationship with the economy of transactions. Letting users purchase things and convert a deposited value into a life experience.
Any of the three mentioned uses of Mobile Money: Deposit, Payments, Purchases can be a media or an end depending the industry where it is developed. And all three are complementary to offer a well-defined service. Another topic is to decide at which point we expect to be profitable as a business unit.
We did not have the opportunity to explore additional uses of Mobile Money as a vehicle to other businesses new to unbanked, or just covering some flaws of the present model where some microcredits charge abusive rate due to the lack of information, or even further thinking in m-commerce solution only available to segments A-B of the countries.
Or maybe, considering Mobile Money as vehicle to drive commerce in a more efficient way, generating value to more player than ever, driving commerce solutions mixed online and offline to customers and merchants in ways that now are only available for class A-B segments becoming global spread to hundreds of millions of potential customers.
No doubt, future is challenging and promising for Mobile Money in Latam and we want to play it.
