|Latin America II 2000
|Prepaid E-Business – Popularizing E-Business
|Dan L. Kinney
|President and Chief Executive Officer
A credible look at the accelerating rush of e-Business in Latin America requires a clear view of the geographical, cultural, social, and economic dynamics of the region. The phenomenon behind the skyrocketing popularity of the Internet throughout Latin America can be explained, in part, by the ready acceptance of its citizenry of wireless communications.
Since the privatisation of Brazil’s state owned Telebrás system and the expected sell-off of PTTs in other Latin American countries as well, whole new commerce opportunities have arisen around this market. The rapidly growing wireless business has not only introduced a means for many to have access to communications links that were unavailable in the past, it has also spawned the creation of numerous ancillary businesses to support this high growth trend. Service providers, cell phone equipment stores, and a host of other related businesses have sprung up virtually overnight to address the escalating communications demands of this borderless mass market. Demographics of the Market While only 2% of Latin America’s 500 million people are online today, telecommunications analysts say that the Internet in the region is the fastest growing market in the world. Some project that Internet connection in the next three years will reach as high as 43 million, thus allowing access to global markets that was once only a dream for many. Yet, the reality of limited phone access (only 1 in 10 of the region’s residents have a phone line) and burdensome connection costs for a great many Latin Americans will prohibit the ubiquitous use of the Internet in hard-to-reach areas where monthly income averages around US$ 350. Couple that with the fact that eighty per cent of Web content is in English and it is clear that roadblocks still exist for unencumbered access to the online world. An often used axiom, which applies to emerging, businesses around the globe states quite succinctly, “never doubt a market trend”. Instability of the international stock exchanges normally curtails aggressive infrastructure investment. In spite of this, a feeding frenzy of entrepreneurs and investors has surfaced both within and outside the region. These market developers are eager to wire the continent and reap the rewards that follow. This influx of new capital will eventually overcome the physical limitations of terrain and the still undeveloped infrastructure. Assuming the imminent spread of Web connections to a growing community of users, a host of new challenges arises that will entail economic consequences for the average citizen. While e-Business opportunities for business-to-business commerce are developing rapidly, business-to-consumer applications have been much slower to develop for practical reasons. Impediments to Rapid Growth of e-Business “However, in Latin America, like many other regions around the world, the economic model is primarily a cash-based one, unlike that found in the U.S. and Europe.” Credit is the hallmark for U.S. Internet-based transactions and the great majority of Web sites offer the means for buying and selling goods and services using credit cards, backed by worldwide credit institutions. Credit transactions involve revealing the user’s identity and other related privacy issues that are accepted in the U.S. market as the cost of doing business. However, in Latin America, like many other regions around the world, the economic model is primarily a cash-based one, unlike that found in the U.S. and Europe. Cash usage obviates the need for banking references, credit histories, and many other items requisite for conducting commerce on the net. Maintaining the privacy of new Internet users is culturally important to a region where full disclosure of personal information is widely resisted. The answer to this dilemma lies in the wide spread adoption of prepaid techniques for both Internet access and e-Business. While network-based prepaid connections are quite common in the wireless world, it is a relatively new process for Internet service providers. Although public Internet centres are increasingly making their appearances in major population areas, the prepaid systems employed are typified by on-site cash collection, physical timing devices monitored by centre personnel, and a lack of database information to track usage patterns and preferences. Prepaid System AttributesInnovative prepaid solutions such as that offered by CPDI of Vancouver, Washington, U.S.A., rely on technology developed from the ground-up to automate the prepaid process. This type of prepaid Internet system is based on the use of PINs (personal identification numbers) or authorisation codes that are concealed or encrypted on prepaid purchased cards. The confidentiality of the user is protected and fraudulent use is averted by the use of specialised software. Such software has been well received in developing economies around the world because it provides fraud protection and highly flexible call rating techniques. In addition to facilitating prepaid Internet access, the system supports multiple prepaid card applications enabling users to apply their prepaid credit in a variety of ways including, but not limited to, the payment of telephone calls or even gas purchases at card equipped service stations. Internet Kiosks Come of Age “Thus, the emergence of the casual Internet station or kiosk has come of age, bringing the Internet to the user.” In the coming years, as the need for web access permeates the business world and works its way to the individual consumer, the demand for services will increase exponentially. Internet users will increasingly demand broader web access whether it is by wireless or landline connection. The required mobility of business representatives and their ability to conduct commerce away from home is critical to their success. Thus, the emergence of the casual Internet station or kiosk has come of age, bringing the Internet to the user. Internet kiosks resembling ATMs (automatic teller machines) are popping up in hotels, shopping malls, airports, and other high traffic locations. These access devices provide casual Internet users convenience, ease of use, and fast connect times for e-Business transactions, e-mail, and other Internet applications. The physical appearances of the kiosks run the gamut from single station devices to multiple desktops in café environments. All such installations have features to control who uses the kiosk and the amount of connect time allowed. Prepaid Internet is the predominant method of access and provides casual users with instant web availability. Cash is king! “A commercially viable, Internet-wide, prepaid cash solution has unimaginable value.” E-Business, doing business through the Internet, offers the consuming public access to products and services that often are not otherwise readily available the region. As a practical matter, the prepaid dynamic makes filling these orders difficult but not impossible. Today, e-Business is dictated by credit based transactions which are, in turn, backed by large financial organisations. In order for the consumer to complete a transaction, a recognisable credit card, or equivalent, is required. This assures the merchant supplying the products that he will receive payment. In a prepaid world, the goal is to devise a method by which this same merchant will accept a prepaid verification much the same way as credit. This concept has become the “Holy Grail” for Internet technologists and for good reason. A commercially viable, Internet-wide, prepaid cash solution has unimaginable value since the great majority of the world’s population relies on cash, not credit, for its needs. A Prepaid E-Business Model Suppose, for a moment, that an economically and technically feasible model can be developed that bridges this payment gap. For example, whenever a merchant is part of a closed distribution network that has predefined order acceptance guidelines, the basic infrastructure for supporting prepaid e-Business is already in place. “In the foreseeable future, we will witness the advent of Internet end-to-end prepaid payment systems where immediate cash verification takes place at the merchant location.” This can be the case for merchants who are web portal partners of larger ISPs (internet service providers) or members of wholesale / retail distribution networks that pre-establish ground rules for the ordering, delivery, and transfer of payment to the supplier. In the foreseeable future, we will witness the advent of Internet end-to-end prepaid payment systems where immediate cash verification takes place at the merchant location. As this technology evolves, a whole new spectrum of opportunity opens up across the diverse cultural and social mosaic of a global economy. Conclusion Technological advances are driving changes to Latin America’s social landscape. It is happening at a pace, compared with just a few short years ago, that boggles the mind. The focal point of this change, one that transcends countries and regions, is in the ability to communicate. Access to the Internet using wireless devices is growing in many parts of the world and Latin America will soon be taking part. However, the core social value of privacy for citizens and the reality of cash as the dominant medium for commerce will not disappear easily. Thus, in Latin America popular growth in the use of the Internet will depend, in good part, on the availability of reliable mechanisms for prepaid market transactions. These, we expect, will be around for a long time prompting international businesses to continue development of the leading edge solutions.