|Latin America 2011
|Mobile Money in Latin America – A tale of benefits and challenges
|President & Founder
Serge Elkiner is President and founder of YellowPepper. Born and raised in Brussels, the politically-active Elkiner was, at the early age of 16, selected as leader of one of Belgium’s largest youth movements. Prior to spearheading the YellowPepper company in 2004, Mr. Elkiner was Vice President of Business Development at HelloTech Technologies, an Israeli firm providing remote monitoring and mobile payment solutions for vending machines worldwide. Mr. Elkiner designed and implemented the company’s mobile offering and played a major role in the launch of a pilot mobile system along with Aramark and Ed Dooley Vending.
In Latin America Mr. Elkiner identified enormous business potential for using pervasive mobile technology to empower consumers. To develop this idea, he developed YellowPepper Mobile Solutions and engineered partnerships with the top financial institutions in Latin America, which have created opportunities with mobile operators and retail organizations. A frequent world traveller, Elkiner has capitalized on these cultural experiences throughout his career.
Serge Elkiner earned his B.S. in Accounting from Boston University.
Latin America is following Africa in introducing mobile money. A large part of the population there is ‘unbanked’ and have no access to financial services. Mobile money reaching the mass market has the potential of stimulating the economy, growing its GDP, boosting small business and facilitating financial services at a fraction of the normal banking costs. However, success of such services depend on developing ecosystem of participating agents, without which the service will fail. The ecosystem includes networks of small stores, such as mom-and-pop, that are willing to accept mobile money and also benefit from cashless transactions and remote bill payments. Regulators in Latin America find that Mobile Wallet is harder to deal with, since it is not just an extension of online banking. They need to ensure that regulation does not inhibit addressing the ‘unbanked’ while retaining banking standards.
The same mobile money phenomenon that has swept through much of Africa and Asia is now taking hold throughout Latin America. Banking traditional distribution channels cater to the high-average balance account holders but ignore small accounts, due to the high costs of servicing low-average balance accounts. This results in over 450 million Latin Americans underserved by financial institutions.
Enormous population underserved
Similar to the impact in countries such as Kenya, mobile money is meant to transform the lives of the millions of Latin Americans who are currently underserved by financial institutions by giving them access to affordable financial services. Banks, telecommunication companies and regulators are all working together in the region to establish the necessary foundations for the service to be introduced within a regulated environment. With almost a hundred per cent of the regions’ population with access to cell phones, the infrastructure is nearly in place to extend the reach of the financial sector to include the entire population in an economically feasible manner.
In most countries, the regulators have already implemented, or are currently formulating, the legislation to ensure that mobile money meets current banking standards. The challenge lies in allowing enough flexibility in these new regulations to enable the inclusion of the unbanked population.
The implementation of mobile wallet does present some challenges. Countries that have adopted mobile wallet technology have found the regulation more difficult to develop than that of mobile banking, which is just an extension of existing banking regulations, because ‘mobile wallet’ requires a network of agents trained in the basics of financial regulations.
A second factor in the current mobile wallet implementation is driving consumers to use electronic money before the critical mass of merchants has been established to accept these transactions. It is crucial for a successful and seamless mobile wallet integration to spend time working with mobile network operators, regulators and retailers and create an adequate ecosystem. Industry experts assert that the day you can leave your house with just your phone and keys (and with no wallet) will not be before the day the ecosystem is ready.
Latin Americans have had time to study mobile money development in Africa, and have taken the necessary steps to ensure that financial institutions develop this service. After the infrastructure and regulatory framework is in place, there are numerous possibilities for banks, governments, MNOs, distributors, companies and the population as a whole to benefits from mobile money.
Extending financial services reach
Banks will be able to gain access to eighty per cent of the population they have not been able to serve. They will begin by offering low cost and easy access “wallet-type” accounts that can be accessed by a cell phone and supported by a dense agent network. After they gather enough insight on the savings and consumption patterns of this new client base, the banks will be able to channel loans to this segment of the market at much lower interest rates than they had previously done.
The existing banked customers will benefit from declining interest rates as liquidity is instilled into the financial sector. Financial institutions will also benefit from marketing to the mass market new services, such as micro insurance and other value-added services, through a new distribution channel of agents that greatly increases their reach. Additionally, Banks will benefit by extending their services to both the unbanked individual consumers as well as the mom-and-pop stores where this segment of the population transacts most heavily. As mobile money begins to flow into this unbanked segment of the economy, consumers will be able to pay for goods and services directly from their accounts instead of using cash. As a result, the stores that service them will also benefit from their inclusion into the financial sector by opening their commercial wallet accounts.
These commercial accounts provide store owners with much needed security by eliminating the need to store large sums of cash in their place of business, thereby reducing the risk of theft. Traders will have the added convenience of being able to pay bills directly from their phones without having to leave their stores. Having these new commercial accounts presents a tremendous opportunity for the banks to eliminate the use of cash for major consumer goods companies, in their distribution cycle. Other payment systems have tried previously to capture these transactions without success. This is primarily because previous mobile banking models were based on the old financial systems with their limited reach and costly pricing structure.
Kent Lupberger, IFC Global Head of Telecom, Media and Technology, said in a recent interview: “Access to financial services is key to enabling full participation in the formal economy. Mobile banking is one of the most promising areas for extending these services to under-served populations”.
Beyond Social Benefits
Regional governments do not look at these services purely from a social standpoint. They will also be able to use mobile money to distribute their subsidies and aid in a more cost effective manner, by depositing the funds directly to the recipients’ accounts. Several governments in the region use debit or prepaid cards to distribute their aid. This approach is limited by the current limited reach and cost structure of traditional payment systems.
It is clear that those who have the most to gain are the 450 million Latin Americans who lack access to financial services. These individuals will have access to a secure and convenient place to store and use their money. Mobile money provides another alternative for many Latin Americans to receive remittances directly into their accounts, with lower charges than the fees currently charged by traditional remittance service providers. Low income employees can now begin to receive their wages directly into their accounts, a service the banked population has been using for years.
Beyond Payments and Credit
After financial institutions are able to collect the data of consumer profiles from this market segment (e.g. saving, spending and payment habits), they will be able to tailor financial products to specific consumer needs. Banks, for example, will have enough information to persuade them to extend credit to eligible candidates at accessible rates and terms. Mobile operators will also see the benefit with more airtime purchases, billable network traffic, such as data and SMS, and an increase in customer loyalty.
This not only poses a sound and profitable business opportunity, but also presents a whole new level of economic activity for millions. Having access to affordable credit will allow many to become homeowners, gather the necessary working capital to expand their businesses, and even finance their children’s education. A study by the International Insurance Foundation suggests that increases in banking penetration have an immediate positive impact on GDP growth. In some cases, a 10 per cent increase in banking credit to the private sector boosts GDP per capita by 0.42 per cent. As mobile money expands, the entire Latin American population and each of its economies will finally begin to benefit from the new financial inclusion.
The stage is set for mobile money to revolutionize the financial system in Latin America. The success of mobile wallet development rests on the ability to learn from other markets, and the compilation of a cohesive team of players to create a balanced and supportive ecosystem. Now it is up to the Banks, Regulators, and the MNOs to continue working together to introduce this service successfully.