 | Issue: | Latin America 2011 |
| Article no.: | 6 | |
| Topic: | Money (or financial services) and the mobile phone services in Latin America – a regulator’s view | |
| Author: | Sr. Cristhian Lizcano Ortíz | |
| Title: | Director Ejecutivo | |
| Organisation: | Comisión de Regulación de Comunicaciones (CRC), Colombia | |
| PDF size: | 266KB |
About author
Cristhian Lizcano Omar Ortiz is the Executive Director of the Comisión de Regulación de Comunicaciones (CRC), Colombia. Mr Ortiz is a bilingual attorney with background in business law and experience in corporate law, regulation of telecommunications markets, business recruitment and commercial application of competition law.
Cristhian Lizcano Omar Ortiz is a graduate of the LSE, London with a Master of Laws (LLM) and the external University of Colombia, Bogotá D.C. with a degree in Economic Law.
Article abstract
Mobile financial services have the potential of reaching customer segments that previously have not been favoured by the financial institutions, because of the high cost of covering low density population and the limited ARPU of low income customer base. However, internet usage and mobile phone penetration in the region are rising fast, enabling mobile financial services to be offered over the Internet to the underserved customer base. The current slow deployment, compared with other developing regions, is due to several local factors, including the need to harmonise the regulatory environment between the financial sector and Telecom, which may require government intervention.
Full Article
Mobile phone services, key to the access to financial services
Dealing with financial mobile phone services in Latin America forces us to refer to both the impact that this phenomena represents in terms of society’s welfare and the opportunities generated by the different business models for several agents in the market. The possibility of expanding the portfolio of services offered through a particular infrastructure, and its different uses, is a great opportunity to expand the range of ICT (Information and Communication Technologies) and reach more segments of society. This is especially true when the infrastructure considered is the mobile network, with more complete reach and higher levels of penetration than any other telecommunication service.
The mobile phone service as a key determinant of access to financial services within the region
The expansion accomplished by mobile phone services has established it as a key factor of social inclusion for the less affluent population. In many cases, the mobile phone service is the only service that has been able to reach the furthest areas in the different countries, allowing the use of telecommunication services, and the opportunities that come with them in terms of social and economic welfare, to improve the quality of life. However, to accomplish this completely, there are still several challenges that need to be faced and actions need to be taken.
In general terms, almost 100 per cent of the Latin American population has access to mobile phone services , but less than 50 per cent has access to basic financial services .
It is clear that access to financial services in Latin America is considerably low, with a ratio of bank assets to Gross National Income (GNI) of 50 per cent, considerably lower than in OECD (Organisation for Economic Co-operation and Development) countries (GNI = 193 per cent) but still higher than other low income countries (GNI = 20 Per cent). This can be observed even in the richer countries in the region, except for Chile and Brazil .
Regarding ICT, Latin America has witnessed intense growth in the number of Internet users, but it is still in its early stages. This growth is reaching over 38 million broadband internet users during 2011 (7.12 per cent of global broadband Internet users) and 455 million mobile phone users. Comparing this progress, present and future, with other developing regions such as Africa, and the Middle-East, one can foresee that Latin America will soon surpass them in terms of mobile penetration and use of the Internet.
However, the particular geographic characteristics of the Latin American region mean that it is rather expensive to reach 100 per cent of the national territory. There is a concentration of the network deployment in highly populated areas, in contrast with further parts of the country. In fact, most of the penetration accomplished by the mobile networks corresponds to highly populated urban areas, and only a minority of this corresponds to rural areas. Nonetheless, mobile services have reached a great number of low income households, which can contribute to increasing the reach of other services that can be provided through the mobile networks, such as the financial services.
Opportunities of accessibility of banking services in Latin America
The type of banking services that increase accessibility for wider population can be identified as:
(i) Services that don’t require a direct relationship with banks but constitute a first step towards it (such as non-monetary deposits) for population that has not used banking services before;
(ii) Services that establish a direct relationship between people and banks and complement existing financial services, such as mobile banking services (m-banking). Thus ICT constitutes a key determinant to the modernization of the financial industry, especially in developing economies, capable of transforming the behaviour of people.
In fact, the use of Internet allows us to observe important changes in the way in which users relate to other entities. For example, due to the versatility of the mobile phone services and the patterns of use, in particular by the younger groups, the voice service provided by the mobile networks tends to lose importance compared to other value-added services. It can also be observed that this behaviour and the use of mobile phone services extend to the medium and lower income users, proving the extended daily use of the wider service portfolio the mobile network operators are willing to provide at the time can reach larger portions of Latin American population. As shown in the following figure, more than 50 per cent of the population in most cases has used some form of data in the mobile phones, including SMS (Short Message Service), MMS (Multimedia Messaging Service), IM (Instant Messaging), data cards, web browsing, etc.
Figure1. Mobile Data Penetration
Source: Pyramid Research, Mobile Data Forecasts – March 2011
It is clear that in time the voice service provided by the mobile network operator will be only one of the multiple services provided through the networks. The banking services providers must understand the difference between the penetration of their services compared to the penetration of the mobile phone services. They should consider that this telecommunication platform could be a substitute for investment in other types of banking infrastructure (physical offices, ATM’s, credit and debit cards, etc). Service providers must also realise that the literacy requirements for the use of mobile phone services is much lower than in other types of applications (such as access to Internet through a computer). The personal characteristic of the mobile phone services allows a broader chance to adapt to the users’ needs and to different business models, therefore the mobile phone can work as a source of information and as a mean of transactions.
The mobile financial services are in a very early stage of deployment, and in some cases, the development is null. Some of the biggest banking entities of the region have started to offer in an incremental way, mobile financial services as an added feature. However, in Latin America this type of service fails to achieve the most important accomplishment that mobile financial services could undertake – to extend access of banking services to the ‘unattended’ segments of the population. This is in contrast with other developing regions, such as Africa and Asia, where the development of the mobile financial services has reached both currently banked and unbanked segments of the population.
This does not mean that there are no such services offered. Within different Latin American countries there are various services supported, such as: (i) m-banking, (ii) m-payments, and (iii) national and international transfer services. There are also services that do not require traditional banking, such as m-payments unrelated to a banking account, and transfers and deposits of units of value other than money.
Factors influencing deployment of mobile financial services
One of the main reasons to explain low mobile financial service development and penetration is the low margins as a result of having to increase the distribution channels to the ‘unattended’ areas of the national territory, areas which usually have a very low density, scattered households in rather large geographic areas, and low income users.
In this context, mobile financial services are an opportunity for the financial industry to reach new client segments with low fixed and variable income, and obtain revenues both from the services provided (such as money deposits) and from the inter-mediation of means of payment. This can help financial institutions to gain credibility with the users, and to generate demand for other services provided by them. This can also work for the mobile network operators, since value-added services may increase their attractiveness to the users and may even incentivise these users to consume more services, increasing ARPUs, reducing churn and enlarging their user base.
All parties must collaborate to make the provision of mobile financial services feasible for all involved. This has clearly not been the case so far, since the development of these services has been rather poor.
Both necessary and secondary conditions for enabling mobile financial services have been identified. For instance, the necessary conditions include having almost full national network coverage and technological capabilities in SDK (Service Development Kit) for SMS and USSD (Unstructured Supplementary Service Data) or JAVA. Another is the relative absence of legal or regulatory impediments for both the financial sector and the telecommunications industry. However, one of the obstacles may be that typically these two industries have different policy and regulatory entities, and in general, different institutions govern them, therefore this may require a united effort from the government as well.
Secondary factors include some legal and regulatory interventions already established, such as authorised correspondents other than banks and financial institutions. Other factors include:
• electronic transactions and so forth
• the level of penetration and use of mobile phone services
• the security of electronic transactions
• the possibility to personalize the access to this services, contrary to the current electronic transactions through the web
• literacy requirements for users of financial services
• the current accessibility to traditional banking services.
Other conditions are for example the accessibility to accounts, low taxes, cultural issues that might favour the use of electronic payments, trust in the financial system, and the need to transfer money to and from abroad.
In conclusion
It can be concluded then that the region has most of the elements required to seize the opportunity to deepen the inclusion of the less favoured population in the financial services. This will contribute to the economic growth and the quality of life of the population in general. The penetration and coverage accomplished by the mobile networks will allow the provision of better services, where traditional financial services have not been able to reach yet, and satisfy these needs with the use of the telecommunications platforms.
This is an opportunity for joint resources and efforts from both the private and the public sectors to transform society. However, this should be implemented swiftly, promptly, efficiently and securely, in order to strengthen the position of the different players involved, resulting in a deepening and increasing accessibility of banking and ICT services nationwide.
