This is the second part of our two-part survey of the state of mobile finance and commerce in Latin America. The first part can be found here.
While much of Africa and emerging Asia does not have many alternatives to mobile money, Latin America, particularly Brazil, was a pioneer in branchless banking. According to a recent whitepaper on card and payment trends in Latin America, Brazil has about 400,000 authorized agents, while in Peru banking agents now carry out 16% more transactions than bank tellers. In Mexico, agents are to be found in retail chains such as Oxxo, Soriana and Walmart, and in Colombia, the number of banking agents is growing 44% annually, compared to just 6% for bank branches. As Mondato Insight noted last week, governments in some parts of Latin America and the Caribbean have embraced digital payments for bulk disbursements, such as social payments or conditional cash transfers, while the use of prepaid cards is also fairly widespread. Notable examples include Bolsa Familia in Brazil, Asignación Universal por Hijo in Argentina, Programa Juntos in Peru, Familias en Acción in Colombia, and Oportunidades in Mexico. The trend towards digitization has been gathering pace, partly in recognition of the potential efficiencies and improved access to financial services that they create. Since 2013, for example, all Mexican government employees and social security beneficiaries receive their money via direct deposit.
Enter Mobile Money
Tigo has been the most successful company mobile money deployment in the LAC region to date, with deployments in Bolivia, El Salvador, Guatemala, Honduras and Paraguay. Tigo Money in El Salvador, in particular, is one of Millicom’s strongest deployments globally, where mobile money accounts for over 20% of Tigo’s mobile subscribers base, and has been driven by bill payments and international remittance. According to Greg Reeve, COO, MFS and Ronald Alvarenga, Product & Commercial Director, Latin America at Milicom, the key to Tigo Money’s success is that it has not relied on a one-size-fits-all commercial model in order to succeed: "We place a strong emphasis on identifying and implementing a bespoke strategy for each individual market in the region. More than this, Millicom has placed understanding the individual customer at the center of our Mobile Financial Services (MFS). We offer products and services that people actually want and need, tailored to their circumstances. In some markets it is money transfer, in others it is about paying your bills or collection services, in others it is receiving international remittances.”
As noted previously, government disbursements have been a significant driver for the growth of DaviPlata in Colombia in the four years since its launch. According to Hair Muñoz Gonzalez, Head of DaviPlata, the pillars of success have been the sustainable and profitable business model that is free for the user, the utilization of the language/slang of their clients, and the mobility of the service – allowing the user to do everything on their phone, without the need to go to an agent. When competing with cash, people comprehend the value-add of a mobile wallet only when the service is free. Understanding cultural differences and learning from their customers, rather than teaching them, has proven instrumental in DaviPlata’s success, in Mr. Muñoz's assessment.
Most banks, however, are still focused on developing solutions for their middle class and affluent customers, and offer at least some form of mobile banking. Even for this segment, however, the number of digital wallets available to consumers as e-commerce in LAC grows has been growing, and adoption rates are also trending upwards. Mercado Pago and PayPal are regional players, but there also exists a variety of smaller players across the continent, including Mondero in Argentina and, indeed, about a dozen wallets in Brazil, including Banco de Brasil’s Stelo, b-Cash, Oi Carteira, and PagSeguro. These developments have not necessarily been to the exclusion of base of the pyramid customers. Most banks in the region have smartphone apps for their clients, while some banks, such as Davivienda in Colombia, are developing mobility strategies to enable all their clients to access services on smartphones. These mobile products allow customers to do everything online, without the need to go to a branch, thereby increasing the clients’ user experience while also cutting operational costs. In Mexico, the Banamex partnership with MasterCard and the BBVA partnership with Visa are both putting digital in the center of their strategies, with a focus on taking NFC/HCE services to market.
Current MFS Challenges and Opportunities
“Mobile money in Latin America is an ecosystem play, there is more of a deliberate focus on integrating with different companies in the value chain,” Mireya Almazán, Latin America Manager for GSMA Mobile Money for the Unbanked, said in recent interview. Not everyone agrees that this is happening, however. Keeping funds in the ecosystem requires incentivizing users with services, such as savings, loans and insurance products -- also known as Digital Finance Plus (DF+) -- which certain providers, such as Brazil's Oi Telecom, are now exploring. Oi is partnering with Cignifi and IDB to test alternative lending. Despite this, however, it is fair to say that there has not been to date any significant uptake of DF+ in LAC. Vanessa Vizcarra Bianchi, Senior Digital Financial Services Specialist at the IFC, told Mondato in a recent interview that "Creating useful services with the end-user in mind and with the right partners would make a difference". That is not currently happening at a sufficient scale, however.
“Banks in LAC have been relatively liquid with profitable customer segments” said Ms. Bianchi, and “thus, they have not needed to target the bottom of the pyramid.” In pursuing the unbanked, banks in the region have been struggling to either lower their acquisition costs and/or to create compelling products. There have been a few unsuccessful attempts to serve the poor and lower-middle classes through prepaid cards and microloans, so banks have tended to focus attention on their existing, and already profitable, clients. That strategy may have to be revisited, however, as the slowing of growth in consumer credit means banks need to find new streams of revenue. Consequently, opportunities to target the BOP are becoming more enticing. But because technical innovation in the MFS sector comes primarily from Asia and Africa, in LAC the focus is more on new and expanded use cases rather than new technologies.
E-commerce in the region is equally growing, having reached $69 billion in sales in 2013, and increasing at an annual rate of 45%, making it the fastest growing retail channel in the region. Brazil is the largest e-commerce market in LAC ($18.80 billion of sales in 2014), followed by Mexico ($6 billion) and Argentina ($4.67 billion). When e-commerce migrates to mobile, the need for mobile and digital wallets may also increase as a result. These wallets could increase their chances of success with value added services such as installment payments, which have been very popular in LAC, and Brazil in particular. Banks see potential disintermediation in the face of PayPal, says Javier Chavez Ruiz, CEO at Mexico Mobile Financial Solutions, and are looking to adopt their strategies to the digital payments reality accordingly.
Venezuela and Argentina have been struggling politically and economically, resulting in volatile currencies, inflation, and limited access to foreign exchange. One solution for these markets could be cryptocurrencies. An increasing number of businesses in Argentina are accepting Bitcoin, from appliances stores, hotels, and coffee shops to flower stands and ice-cream shops. Although Argentina is an ideal environment for cryptocurrencies due to its well-educated and tech-savvy population -- paired with its need for a stable currency (as showcased in this NYT article) -- there are other economies in LAC that may also profit from the use of cryptocurrencies. Bitcoin also presents interesting opportunities for international trade in countries such as Mexico, Brazil and Colombia, according to Gabriel Miron, Co-founder of meXBT, a crypto currency exchange based in Mexico that is focused on emerging markets and SMEs. “SMEs that do not have access to financial services and find it difficult to transact with suppliers from China, for example” could find Bitcoin useful, says Miron. Companies such as meXBT give them access to financial services, better rates and thus more liberty to do their business. However, whatever role crypto currencies may play in these economies, regulation will still need to be complied with, and this needs to be taken into account.
Even thought LAC is less developed in terms of MFC than other regions in the world, there is clearly an increasing interest from stakeholders and large potential for growth. Adoption has been slow, as these new services must compete with reasonably good extant alternatives. However, by identifying and implementing feasible and viable use cases with the right partners while taking into account each market’s individual characteristics, stakeholders in MFC have a high chance of success, as all the other factors for its fruition are in place.
©Mondato 2015. Mondato is a boutique management consultancy specializing in strategic, commercial and operational support for the Mobile Finance and Commerce (MFC) industry. With an unparalleled team of dedicated MFC professionals and a global network of industry contacts, Mondato has the depth of experience to provide high-impact, hands-on support for clients across the MFC ecosystem, including service providers, banks, telcos, technology firms, merchants and investors. Our weekly newsletters are the go-to source of news and analysis in the MFC industry.
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