 | Issue: | Latin America 2009 |
| Article no.: | 8 | |
| Topic: | Money talks – cross-border mobile payments | |
| Author: | Stephen Gibb | |
| Title: | Chief Information Officer | |
| Organisation: | Upaid | |
| PDF size: | 200KB |
About author
Stephen Gibb is the Chief Information Officer at Upaid, a company specialising in mobile payments. Mr Gibb joined Upaid as Senior Vice President of Customer Operations. Mr Gibb currently leads international technological operations, focusing on global projects through the Upaid Brazilian technology hub. Prior to joining Upaid, Mr Gibb served as Director of Strategy and Operations at ExchangePath, a CMGI company providing on-line payment systems. Mr Gibb was also a Program Management Consultant with Allied Irish Bank. Mr Gibb has over twenty years of previous international experience in telecom and financial services companies including IBM, Sun Microsystems, Alcatel and BNP Paribas. Stephen Gibb holds an Honours degree from Newcastle University.
Article abstract
Globally, migrant worker remittances contribute greatly to the economies of the emerging markets receiving the funds – up to £100 billion per year. Today, the mobile top-up infrastructure is increasingly used for cross-border money transfers. In Latin America, mobile money transfer represents a significant prospective market for mobile operators, financial services organisations, governments and retailers. According to the International Monetary Fund, even in relatively developed areas such as São Paulo fewer than 40 per cent of households have access to financial services.
Full Article
Cross-border payments between senders and recipients in different countries is a multi-billion dollar industry. According to the World Bank, over 175 million migrants currently use transfer services, sending money to around 800 million recipients at an estimated average transaction value of £100. As countries worldwide become increasingly interdependent through trade and investment, with ever more globally mobile populations, the need to move money across borders efficiently, securely and inexpensively will only intensify. Looking at the money transfer industry from a global perspective, remittance from all countries makes a large contribution to the economies of the emerging markets receiving the funds. In fact, the portion of migrants’ earnings returned to their country of origin may represent up to £100bn a year in international flows. The use of pre-pay mobiles in emerging markets remains the dominant form of mobile communication across many developing and emerging markets. For example, Brazil’s mobile market is the fifth largest in the world, with 133.15 million mobile subscribers and mobile penetration at 69.52 per cent, over 80 per cent of which are pre-paid. In 2007, there were three times more mobile subscribers across Latin America than subscribers of fixed line services. This suggests that the infrastructure that supported mobile top-ups is still well positioned to support standard cross-border money transfers. Cross-border mobile payments originated with the ability to top-up the phone of a friend or family member from another country. In Latin America, the mobile money transfer sector represents a significant prospective market for mobile operators, financial services organisations, governments, retailers, and end users. Juniper Research forecasts that service provider revenues derived from mobile money transfer services and remittances will exceed US$5 billion globally by 2013. A large part of this revenue will come from emerging markets, since mobile payments present them with a number of key advantages over traditional financial systems. Mobile money transfers can enable migrant workers to send money home at far lower transaction rates than traditional services. A recent survey of US citizens showed that the majority of those questioned (61 per cent) are spending over US$75 a month on the fees and commission associated with cross-border payments, with many considering their current method of money transfer expensive. Two thirds of those who transfer money via a shop find it expensive; all of respondents, one hundred per cent, thought transferring money this way was, at least, quite costly. In the rural areas of many Latin American countries, banking and other elements of social infrastructure are less developed (for example, 70 per cent of the rural population of Peru has limited access to electricity). This leaves the door open for other methods of transaction. A substantial portion of the population in some Latin American countries does not have bank accounts. Research from The International Monetary Fund has stated that in Sao Paulo fewer than 40 per cent of households have access to financial services. Evidence from The Inter-American Development Bank concurs, saying that only 14.4 per cent of Latin America’s low-income population has access to a savings account. Unsurprisingly then, this section of the population often finds it difficult and expensive to transfer money through traditional banking services. Mobile money transfers can give these people instant access to funds through a ubiquitous device now carried by 3.3 billion people worldwide. Mobile payments infrastructure can also be implemented much more rapidly and cost-effectively in emerging markets than traditional banking services, which require the installation of both ATMS and banking infrastructure, as well as the establishment of a dependable landline telecoms network. In the past, the whole of Latin America affected by hyperinflation, needed methods to transfer money rapidly. In many parts of Latin America, it is not a financially viable option to wait several days to transfer funds from purchaser to supplier, as changes in the value of the currency often inflate the price. Real-time banking is imperative for banks in the region and this gave birth to companies that connected mobile operator’s billing systems to the central banking system. Most Latin American economies are far more stable now than they have been in the past, but recent loss of trust in the banking system in countries like Argentina and Mexico has also contributed to consumers searching for different methods of transferring their money. Uptake of mobile payment technology varies across Latin America, simply because the level of telecommunications technology differs throughout the region: from adequate to well advanced in some major cities to rudimentary or even nonexistent in some areas. For example, only the populations of Uruguay and Chile have full mobile coverage, whereas in Ecuador and Colombia, it is 84 per cent. Bolivia has the lowest mobile coverage, reaching only 45.9 per cent of the country’s population. Brazil has progressed far beyond the rest of Latin America; 73 per cent of the population have access to mobile devices. Brazil often leads the way with new technology. WiMAX is being introduced in the town of Paritins, which is located on a large island in the middle of the Amazon River, and there are more minor rollouts across the country. While Brazil may be a success story in the region, there are many countries in Latin America with a long way to go in terms of mobile penetration and sophistication of networks, devices, providers or users’ acceptance of mobile technology. Nicaragua, Guyana, Cayenne and Surinam are the worst performing countries with regards to wireless telecommunications developments. The Brazilian market is often a good indicator of what technologies will become successful as it is the largest economy in the region, despite having suffered the same hyperinflation as the rest of Latin America. However, being the only Portuguese-speaking country in Latin America can give Brazil a somewhat introverted view of itself when doing business within the region, so other Latin American countries may not follow suit exactly in terms of technological developments. Electronic payments have a strong history in Brazil, with high numbers of Point of Sale (POS) terminals in retail outlets across the country. While the proliferation of POS devices often alleviates inconvenience, they cannot match the ubiquity of the mobile phone itself. While this point-of-sale network will still be required for funding and retrieving transfers for the un-banked community, cooperation between mobile operators, banks and merchants would see it vastly broadened. The rapid growth in access to mobile telecommunications in Brazil has created new opportunities to provide secure, low-cost financial services using the local mobile networks. The ability to transfer funds safely and securely using mobile phones could revolutionise the way people in the region save, spend and transfer their money. If the mobile industry can work successfully alongside the financial services sector and the regulators, the remittance business could develop dramatically. Mobile money transfer has the potential to compete seriously with existing money transfer agencies and adding mobile support to existing electronic payments transfer infrastructure is a next logical step. Potential benefits of money transfer via mobile are the instantaneous transfer of funds, low commission on money transfers, the ability to transfer money directly to a family member’s bank account and the ability to directly pay for a family member’s phone credit or utility bill. The Brazilian mobile payments market is a promising one realizable by a consortium of service providers working together with banks and mobile operators to ensure that easy money transfer options are readily available. Consolidation in recent years should make this easier, with many independent and regionalised Brazilian mobile operators purchased by the larger players. This has also led to a consolidation in infrastructure, which has strengthened the Brazilian telecoms industry. When we look at what the future may hold for the players in this market, from handset manufacturers to network operators and banks, it is collaboration that will ensure success. The rapid growth in access to mobile telecommunications in emerging markets has created new opportunities to provide secure, low-cost financial services using mobile networks. If the mobile industry can work successfully alongside the financial services sector and the regulators, the remittance business could dramatically change. Yet, any delay in cooperation between operators and banks in Latin America could still set this process back. And time, as Brazilians know to their peril, is money.
