 | Issue: | Latin America 2011 |
| Article no.: | 4 | |
| Topic: | The long and winding road to mobile money in Panama | |
| Author: | Jorge Nicolau | |
| Title: | CEO | |
| Organisation: | Cable & Wireless, Panama | |
| PDF size: | 351KB |
About author
Jorge Nicolau is the Chief Executive Officer, Cable & Wireless Panama.
Jorge Nicolau is a Business Administrator, graduated from Florida State University with post graduate studies in Value Based Management from North Western University of Chicago, USA. He has undertaken specialized studies in marketing and telecommunications industry management in the prestigious Insead, France and at Thunderbird University in Phoenix, USA.
Mr Nicolau was appointed as the first Panamanian CEO of Cable & Wireless Panama on January 1st, 2007 having previously served in Cable & Wireless Panama as EVP Network Engineering, EVP Customer Service, EVP Human Resources, EVP Public Relations, Marketing, Advertising and Product Development and from May 2002 to December 2006, as Executive Director of the Mobile Network (+Movil).
His vast professional experience includes managerial positions in local and multinational companies such as T. Tzanetatos Group, Inc. and Sears Roebuck & Co. where he served as Director in Puerto Rico and from 1974 to 1991 as COO for Colombia and Peru and COO for Central America & Panama.
Mr Nicolau is an active member of organizations such as the Panamanian Chamber of Commerce, Industries and Agriculture, the Panamanian Association of Business Executives (APEDE) and the Panama South Rotary Club. In addition, he served as President of the Inter-American Council of Commerce & Production (CICYP) during 2006-2008.
In the year 2007 he received the prestigious “Executive of year Award” by APEDE in recognition of his leadership, professional and personal contributions to the development of Panama.
Article abstract
The term ‘Mobile Money’ refers to a number of services that affects Person-to-Person (P2P), Business-to-Consumer (B2C), Business-to-Business (B2B) and even Government-to-Person (G2P). These services include extension of online banking, but more significantly, providing financial services for the ‘unbanked’. Each type has different momentum and various inhibitors. Panama, like Latin America as a whole, is lagging behind, partly due to greater penetration of financial services (i.e. fewer unbanked) but also due to stifling regulations. Panama, as a financial banking centre and a free trade zone, must ensure that it does not support anything shady. However, the ‘stars are aligning’ now for launching these services, particularly services that address the unbanked, including remote payments and distribution of financial aid.
Full Article
The term ‘mobile money’ in this article is used for payments which are either initiated or completed via cellphones. There are two types of mobile payments, local or remote. Examples of mobile financial services in general include: money transfers (C2C), top-ups /utility bill or merchant payments (C2B), salary/welfare or loan disbursements (B2C) and supply chain payments (B2B).
Mobile money is stored in a special value account or ‘mobile wallet’ which is either associated with a bank or an e-money provider and can be accessed from the mobile phone or through a debit /credit card. The m-wallet is funded by cashing-in at a service point (agent) or from a traditional bank account. It can be combined with NFC (Near Field Communication) technology to allow for contactless local payments.
While mobile banking targets banked customers in developed countries who typically make high value transactions or exchange financial information with their bank, enabling low value mobile payments is a means for reaching the unbanked mass market in developing countries. Therefore extending online banking to the mobile phone is considered ‘additive’ in contrast with ‘banking the unbanked’ which can transform people’s lives.
Latin America – a mobile money laggard
Currently there are 113 mobile payment initiatives active around the world from the Philippines to South Africa . At least another 88 projects are being planned, raising projections of mobile money users in emerging markets from 133 million to 709 million over the next five years . However, most of these deployments are in Asia and Africa with Latin America clearly lagging behind. Nevertheless, momentum is building in the region: while the first mobile money launches (in Argentina, Brazil, Chile, Colombia and Paraguay) have taken effect over a period of two years, the most recent deployments in the Dominican Republic, Haiti, Guatemala, Honduras and Nicaragua have all taken place within the last nine months.
There are two reasons for this slow start: penetration and regulation. In Latin America and the Caribbean there are more people who already have access to bank accounts and ATMs than in most parts of Africa or Asia. This higher financial services penetration has resulted in lower pressure to develop alternative payments methods. Nevertheless the need for innovation in the region still exists. While the upper segments are well served by the financial sector over half of the population at the bottom of the pyramid remains unbanked. This is equivalent to 300 million people with a purchasing power of more than US$200 million .
Innovation has also been stifled by regulation. Legal systems in Latin America are largely based on civil law coming from the European continent as opposed to the Anglo-Saxon common law system. According to a report from Bankable Frontier, civil law often discourages openness to new ideas since activities that are not explicitly permitted are usually not allowed. On the other hand, when enabling regulations are finally passed in a civil law system, the business environment may change rapidly.
Panama – an international banking centre with potential for mobile money
Panama, with its famous canal, free trade zone and 95 registered banks, is an important regional financial centre and logistics hub. But the small nation with a population of only 3.5 million people is also a developing country with the social inequalities that are so typical for Latin America. And while its political system is now stable and the economy has been burgeoning for years, Panama is still struggling to get rid of its image as a fiscal paradise and a shady offshore banking centre.
This situation explains, at least in part, the conspicuous absence of mobile financial services in the country. Rather than relaxing financial regulation, the government has been tightening banking and business laws in order to comply with OECD (Organisation for Economic Co-operation and Development) requirements but also to create favourable conditions for the ratification of a free trade agreement with the United States. The banking regulator, the Superintendency of Banks of Panama (SBP), simply has a lot more to lose than its counterparts in the region so is more cautious ‘experimenting’ with new payment instruments.
Mobile money ecosystem in Panama – The stars are aligning
Following the example of its African and Asian peers, key players in Panama are now aligning in their effort to offer mobile payments. The current government is promoting the economic inclusion of the informal sector in order to create better access to financing but also to collect more taxes. Moreover, it is looking for efficient mechanisms of social aid disbursement to the elderly and poor via the mobile phone. Also the SBP acknowledges that financial and economic inclusion go hand in hand and the Superintendent, Mr Alberto Diamond, has publicly declared that the regulator is working on policy amendments so that “in the second half of this year (2011) we expect to be ready for this system (m-payments) to be operating in Panama” .
In the wake of these regulatory changes, more and more financial institutions are evaluating possibilities to reach out to new and existing customers in different ways. Several banks are already offering m-banking and in April 2011 state-owned Caja de Ahorros launched ‘Caja Amiga’, an agent network based on POS-EFT terminals placed in retail shops. Customers can relatively easily open a bank account and deposit or withdraw small amounts of money via these agents using a debit card. These ‘stored value accounts’, however, are not yet linked to a mobile phone and remote payments are therefore not possible.
From the perspective of telecom operators, growth opportunities lie in mobile data. Using SMS (Short Message Service) and USSD (Unstructured Supplementary Service Data) as the bearer allows them to bring mobile financial services to all their customers, banked or unbanked, at a relatively low cost. Also, as the experience of M-PESA in Kenya shows, a successful mobile payment service increases ‘stickiness’. Churning customers may be able to keep their phone number (due to number portability) but will have to open a new stored value account in order to continue receiving money transfers on their mobile.
