Is Brazil the country of the future for mobile money?

Latin America and the Caribbean (LAC) has long been seen as a market ripe for the development of mobile money. An estimated 40% of the region’s over-15 population remains unbanked, and in some of the biggest markets in the region, such as Brazil, Mexico or Peru, that figure climbs to above 60%. In contrast, across the region mobile phone penetration has reached 100%, ranging from less than 70% in Belize, to around 150% in Argentina and Uruguay. Despite this, however, the LAC share of global mobile money transactions remains tiny, accounting for approximately one tenth the number that take place in South Asia, without even considering the mobile money hotspot that is East Africa.

In Latin America both MNOs and banks have been comparatively slow to react to the opportunities presented by the intersection of mobile phone and payments technologies. Just three years ago Latin America had the fewest number of mobile money deployments of any region in the world, though it has recently been catching up. A number of countries have made inroads: in Paraguay, for example, Tigo’s TigoMoney m-wallet has made significant advances in a country with one of the lowest per capita number of bank branches on the continent. Tigo has further deployed the product in other markets with poor physical bank infrastructure, such as Bolivia, or high levels of insecurity, such as Guatemala. This MNO-led agent network model remains the most popular mobile money model in the region, as Latin American banks have largely focused their own efforts on developing better m-banking products for their existing customers.

Brazil: ready for lift-off?

Brazil has long been the leader, however, in bank-based branchless banking, with the result that Brazilian banks’ agent networks have a presence in each and every one of Brazil’s almost 6,000 municipalities. This means that one of the most crucial elements of the MFS ecosystem, the agent network, is already in place in Brazil even in the absence of mobile money itself. Recently, the Banco Central do Brasil (BCB) has introduced new regulations that could give the boost that is needed to take a full mobile money deployment to scale in a Latin American country for the first time.

The regulations are an innovative mixture of “light-touch” and caution, and the BCB has clearly keenly observed the experiences of Kenya and the other ‘Pesas’. Non-banks may issue e-money as “payment institutions”, and funds entering the system are held on account at the central bank and do not form part of the deposit base of the banks; in other words, the money cannot be loaned. This stipulation did not form part of the original regulations for electronic payments when they were released last November, and is something of a set-back for the powerful Brazilian banking lobby. This of course means that charging fees will be the only way for the systems to be profitable. Such fees, however, are likely to act as an incentive for customers to immediately cash out whatever payments they receive via the system, so free-to-use is likely to be the initial model as the ventures attempt to grow their customer base.

On the “light-touch” side, is the obvious fact that the new mobile money systems operate within a separate regulatory environment from that which exists for a pure bank-originated product. Given the size of the Brazilian market and a competitive environment that has seen significant partnerships develop between all the big players in both banking and mobile telecoms, the government has wisely made interoperability a long-term goal towards which mobile money license-holders must have an eye, but without demanding anything more at this stage. Regulators have adopted a wait-and-see policy to let the market decide. Of course, this does not necessarily mean that it will be the most consumer-friendly or innovative technology platform that will form the basis of any future interoperable system (just ask the makers of BetaMax). Nevertheless, the importance of allowing innovation and organic development of the ecosystem has clearly been taken on board by the regulators in Brasilia.

Which mobile money platform will be the first to reach critical mass, however, is a question that remains to be answered. Brazil’s four big MNOs have each formed their own partnerships and have deployed or are on the verge of deploying their own MFS platform: Vivo (part of Telefónica and the market-leader in Brazil) has partnered with MasterCard to launch Zuum, while TIM recently gained regulatory approval for its partnership with Caixa and, once again, MasterCard. Claro and the bank Bradesco have had an agreement in place since 2012 that has produced the Meu Dinheiro pre-paid wallet, and which will see a NFC-enabled mobile wallet come to market at some point this year that has the potential to reach their combined customer base of 85 million Brazilians. Not to be left out, Oi, with the smallest market-share of around 18%, though with a strong customer base in many of Brazil’s poorest regions, has teamed up with Banco do Brasil and Brazil’s largest payments processor Cielo to launch Oi Cartera. Bradesco and Banco do Brasil already have enabled cardless “cash out” functions via their ATMs.

Not so fast

On the face of it, all the conditions would appear to be in place, in the gushing words of a Wall Street Journal article, “to unleash a new wave of mobile payments on a par with services such as M-Pesa”. CGAP has talked of “a new wave of e-money in Latin America”, and wondered whether the widespread third-party payment aggregators and networks “will finally unleash the power of mobiles in the region”. There are reasons to be skeptical. Brazilian banks have as yet to demonstrate an understanding of the sorts of products that are attractive to those currently unbanked, or who already use other remittance channels. There already exists in Brazil a sophisticated financial infrastructure offering a wide variety of payment and remittance instruments, alongside access to lines of retail credit direct from retailers even for those who remain unbanked. Although the BCB has, in this instance, resisted pressures from the banking lobby, no MNO has dared to go it alone when it comes to mobile money. Finally, there remain the twin problems of growing consumer over-indebtedness and an overall slowdown in the Brazilian economy that do not lend themselves to creating an optimal economic environment in which mobile money can take off.

In sum, while the BCB’s new regulations are to be welcomed, we believe that on their own they will not provide sufficient impetus for Brazil to become the first Latin American country in which mobile money truly takes off.  Continued innovation from outside the Bank-MNO alliances will be an integral element of taking mobile money to scale in Brazil. Otherwise, the country looks set to remain the country of the future, for mobile money at least, for the time being.

Photo courtesy of Victor Camilo (Flickr), under a Creative Commons Attribution-NoDerivs 2.0 license.

©Mondato 2014. Mondato is a boutique management consultancy specializing in strategic, commercial and operational support for the Mobile Financial Services (MFS) industry. With an unparalleled team of dedicated MFS 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 MFS 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 MFS industry.

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