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Opportunities and barriers for the development of Mobile Financial Services in Latin America and the Caribbean

Methodology:

Analysis of international best practices

Study of the environment for MFS in LAC and, particularly, in Bolivia, Brazil,Dominican Republic, Ecuador, Mexico and Peru

Recommendations for MIF intervention

Cooperation with Fundacin Telefnica:

Workshops in Ecuador, Colombia, Peru, Argentina, Brazil, Venezuela and Chile

Dissemination: Forthcoming publication + blog

Peer review by David Porteous (Bankable Frontier Associates)

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Regional background

Low access to formal financial services in LAC

Source: Honohan (2007)

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Regional background

Large remittance flows

Source: IADB (2008)

-

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45%

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% GDP

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Regional background

Surge in consumer credit

Source: McKinsey (2007)

ChileColombia

Brazil

Mexico

Peru

Argentina Venezuela

0

20

40

60

80

100

120

140

2001 2002 2003 2004 2005

M i l e s d e m i l l o n e s d e U S D

Average annual growth 2001 - 2005: +20%

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Regional background

Mobile is the fastest-growing ICT in LAC

0

10

20

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40

50

60

70

80

2001 2002 2003 2004 2005 2006 2007

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b s c r i

b e r s p e r

1 0 0 i n h a

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Mo bile s ub scribe rs Fixe d lin es Bro adb an d s ub scribe rs In te rn et us ers

Source: ITU (2008)

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Regional background

Source: DIRSI (2007), ITU (2008) and Pyramid Research (2007)

Argentina Brazil Colombia Mexico Peru

Penetration Low-income cell phone users (2007) 70% 53% 89% 37% 60%

Low-income owners (2007) 61% 42% 63% 30% 37%

Total penetration (2007) 102% 63% 74% 64% 55%

Prepay Low income (2007) 74% 96% 90% 92% 96%

Total (2007) 73% 80% 83% 89% 87%

Cost of the

service

Negative perception (expensive) 18% 54% 21% 38% 35%

Neutral perception 68% 34% 51% 45% 55%

Positive perception (cheao) 14% 12% 28% 16% 10%

Average expense Low-income - US$ (2007) 11,0 12,0 6,0 16,0 7,0

ARPU telecom operators US$ (2007) 14,5 15,3 8,1 17,9 10,3

Voice ARPU telecom operators US$ (2007) 11,8 14,1 7,1 15,1 8,9

Elasticity in low-income users

Would stop using cell phone if its cost doubled 9% 8% 16% 23% 9%

Wouldnt change use pattern if cost doubled 34% 24% 20% 29% 21%

Would increase use if cost halved 83% 84% 78% 83% 82%

Would increase use if income doubled 37% 42% 47% 30% 68%

SMS in low-income users SMS use 91% 36% 44% 53% 45%Doenst use because doesnt know how (over non-users) 37% 38% 34% 39% 53%

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Classifying Mobile Financial Services

Services over bankingstores of value(mobile banking)

Services over non-banking stores of value

(mobile wallets)

Link Celular (Argentina)

Pichincha Celular (Ecuador)

Banco do Brasil (Brazil)

Nipper (Mexico)

Mobipay (Spain)

Additive models

MTN Banking (South Africa)

Wizzit (South Africa)

M-Pesa (Kenya)

Gcash (Philippines)

Smart Money (Philippines)

Orange Money (Ivory Coast)

Oi Paggo (Brazil)*

Tigo Cash (Paraguay)

Mobile Money (Jamaica)

Transformational models

* Oi Paggo is a credit-based mobile payment system that requires no bank account, but it is not strictly a mobile wallet

Crandy (USA, France) Obopay (USA)

PayPal Mobile (USA)

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Transformational Mobile Financial Services

Main regulatory concerns:

Financial stability & Competition

Agent networks

AML/CFT

E-money

Main technical concerns:

Mobile bearer technology

Banking core technology

Access to payments systems

BoPBoPBottom-up

Top-down

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Environment for Mobile Financial Services

PRE-REQUISITES

Mobile network

Tested technology

No regulatoryimpediments

AVAILABLE SERVICES

Top-up

Bill payments

Money transfers & remittances

Salaries / subsidies

Purchases

BUSINESS CASE

Promoters & model

Price scheme

Distribution & Cash management

Consumer insight

ENABLERS

Agents

AML / CFT

E-money

High mobilepenetration

Bankingtechnology

Literacy

DRIVERS

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Key national findings

COUNTRY BOLIVIA

Financial System Access to formalfinancial services

30%

Banking agents Regulation and operation

E-money No regulation

Remittances(over GDP)

8%

Mobile telephony Penetration 34,2%

Prepay 85%

Sophistication 7,39%

MFS M-banking Yes

M-wallet n.a.

Additionalinformation

Limited banking technology available at most MFIs Amrica Mvil and Telefnica not present

Entel Mvil;47,8%

Telecel; 27,9%

evatel; 24,3%

0

1

2

3

4

56

7

8

9

10

2003A 2004A 2005A 2006A 2007E 2008E 2009E 2010E 2011E 2012E

M i l l o n e s

Nm ero de abonados celularesPoblacin es timada a Julio de 2008

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COUNTRY BRAZIL


43%


E-money No regulation, prepaid cards


1%


Prepay 80%


MFS M-banking Yes

M-wallet Yes (Oi Paggo*)


Brazil was pioneer in regulating banking correspondents andhas achieved a full coverage of municipalities in the countrywith this scheme. ANATEL, the telecommunications regulatory body in Brazil,must authorize certain value-added services over telecomnetworks, as it might be the case with MFS.

* Oi Paggo is a credit-based mobile payment system that requires no bank account, but it is not strictly a mobile wallet

Vivo; 30,5%

Claro; 24,8%

TIM ; 25,6%

Oi; 18,9%

Otros; 0,3%

0

20

4060

80

100

120

140

160

180

200

2003A 2004A 2005A 2006A 2007E 2008E 2009E 2010E 2011E 2012E

M i l l o n e s

Nm ero de abonados celularesPoblacin es tim ada a Julio de 2008

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COUNTRY ECUADOR


35%




7%


Prepay 88%


MFS M-banking Yes

M-wallet n.a.

Additionalinformation Most Ecuadorian migrants live in Spain, where nearly 77% ofthem have a bank account. In Ecuador, HalCash operates through Banco de Guayaquil.This system allows the reception in a mobile phone of a codethat allows the recipient to withdraw his/her remittance at anATM, as long as it has been sent from a Spanish bankaccount. The recipient does not need such account.

M ovistar; 27,0%

Alegro; 4,8%

Porta Celular (A mricaM ovil); 68,2%

0

2

4

6

8

10

12

14

2003A 2004A 2005A 2006A 2007E 2008E 2009E 2010E 2011E 2012E

M i l l o n e s

Nmero de abonados celularesPoblacin estimada a Julio de 2008

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COUNTRY MEXICO


25%




3%


Prepay 88%


MFS M-banking Yes (inc. Celopago, Nipper)

M-wallet n.a.


Mexico alone received in 2007 remittances for 24.000M$,nearly 50% of all remittance flows in LAC. Western Union offers the use of a mobile application inTrumpet Mobile terminals as an alternative channel for moneytransfer services.

Telcel; 72,9%

ovistar ; 17,8%

Iusacell; 6 ,1%Nextel; 3,2%

0

20

40

60

80

100

120

2003A 2004A 2005A 2006A 2007E 2008E 2009E 2010E 2011E 2012E

M i l l o n e s

Nme ro de abonados celularesPoblacin es timada a Julio de 2008

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COUNTRY PERU


25%




3%


Prepay 88%


MFS M-banking Yes

M-wallet n.a.


Banking supervisors (Superintendencia de Banca y Seguros)and the Central Bank have agreed not to consider mobilewallets as deposit taking, but as a mere payments service.

Claro; 38,8%

Nextel; 3,4%

M ovistar; 57,8%

0

5

10

15

20

25

30

35

2003A 2004A 2005A 2006A 2007E 2008E 2009E 2010E 2011E 2012E

M i l l o n e s

Nmero de abonados celularesPoblacin estimada a Julio de 2008

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COUNTRY DOMINICAN REPUBLIC


29%

Banking agents No regulation



9%


Prepay 85%


MFS M-banking n.a.

M-wallet n.a.


Dominican Republic was the only analyzed country in whichno regulation for banking agents was found, nor any additivem-banking models.

Tric om; 10,3%

Centennial

Dominicana; 6,2%

Orange Dominicana;

36,3%

Claro (Ant es Verizon,Codetel) ; 47,2%

0

1

2

3

4

56

7

8

9

10

2003A 2004A 2005A 2006A 2007E 2008E 2009E 2010E 2011E 2012E

M i l l o n e s

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Country Year Promoter Adoption Distribution

MTNMoney

SouthAfrica

2005 MTN (Operator) andStandard Bank15K clients by April2005

Account opening in MTN and Standard Bankbranches. If identity is not confirmed, limitedfunctionality. Cash-in in stores and EasyPaynetwork.

Wizzit 2005 Bank of Athens 50K clients in lessthan 2 yearsAccount opening with agents (Wizz Kids) and 400Dunn stores; cash-in at PostBank, Absa or Bank

of Athens; cash-out available at stores.

M-Pesa Kenya 2007 Vodafone - Safaricom(Operator)2M registered (April2008) over aprox. 4Mbank accounts

Account opening, cash-in and cash-out in 850+agents and Safaricom stores

GCashPhilippines

2004Globe Telecom - GXI(Operator)

500K active users inurban zones

Account opening, cash-in and cash-out in 4900+

official agents (only account opening requiresphysical presence - KYC)

SmartMoney

2003

Smart Communications(Operator) and 5 banks(including Banco deOro)

4M subscribers (900Kactive) by 2006

Account opening requires physical presence inany of hundreds of Smart shops; cash-in availableat 12000+ associated stores, ATMs (with card) orbank branches

International experiences

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Lessons learned

Transformational approach

Partnership Telecom - Finance

Killer application: Top-up

Importance of remittance flows

Distribution (cash-in/cash-out) Regulation work in progress

Scale

Sophistication of cellular market

0%

10%

20%

30%

40%

50%

60%

70%

0 2000 4000 6000 8000 10000 12000 14000 16000

GDP pe r capita (PPP)

P o p u l a t i o n w i t h a c c e s s t o f o r m a l f i n a n c i a l

s e r v i c e s

ARGVEN

PAR

CHI

COLECU

BRA

DOMMEXPER

BOL

KEN

SOU

PHI

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20%

40%

60%

80%

100%

120%

A r g e n

t i n a C h i l e

V e n e

z u e l a

P a r a g

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S o u t h

A f r i c a

E c u a

d o r

C o l o m

b i a P e r u M e

x i c o B r a s i l

D o m i

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R e p .

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p i n e s

B o l i v i a

K e n y a

M o b i l e s u b s c r i b e r s p e r 1 0 0 i n h a b i t a n t s 2004

2007

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Conclusions: summary of key national findings

Access to financial services Financial Regulation Remittances Mobile Market MFS experiences

Population

with access to financial

services

Branches/ 100K inh.

ATMs/ 100K inh. Agents

Emoney / prepaid cards %GDP

Data ARPU / Total ARPU

Lines per 100 inh. MFS

Bolivia 30% 0,13 4,80 X

/ X 8% 7,39% 34,2

Brazil 43% 3,05 17,82 X

/ 1% 7,75% 63,1 Oi Paggo

Ecuador 35% 4,38 6,32 X

/ 7% 15,77% 75,6 Hal Cash

Mexico 25% 4,09 16,63 X

/ 3% 15,66% 64,1

Celopago, Mobipay, Nipper,

Western Union

Peru 26% 0,89 5,85 X

/ 3% 13,86% 55,3

Dominican Republic 29% 10,83 15,08 X X

/ 9% 5,86% 56,5

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Recommendations

Addressee Goal Recommendation Risks and issues

Donors To choose the countrywith the greater potentialto develop initiatives withregional impact.

To assess the environment in eachof the countries, prioritizing thosein which, given the relevant pre-requisites, MFS enablers anddrivers are also found.

Promoting initiatives basedon excessively favorableenvironments, making themunsuitable for export to othercountries.

To create a positiveenvironment for thedevelopment of MFS.

To collaborate with regulators andauthorities in order to define anopen legal framework whichprovides certainty andharmonization at a regional level.

Creating national regulationswith diverging nationalinterpretations

To support successfulmodels

To apply lessons learned insuccessful models to the reality inLAC.

Failing to adapt internationalexperiences to LACinstitutional and culturaltraces.

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Recommendations

Addressee Goal Recommendation Risks and issues

Nationalauthorities andregulators

To provide an open andwell-defined regulatoryenvironment.

To define relevant regulation forMFS and, particularly, in the fieldsof banking correspondents, e-money and AML/CFT compliancefor low-value accounts.

Rising regulatory demandsexcessively could have anegative impact on someMFS models.

To favor the affordabilityof MFS.

To reduce taxation over financialtransactions andtelecommunications services.

An increase in competitioncould affect profitability orsolvency of someintermediaries.

To favor dialogue amongstakeholders.

To coordinate policy and actions byCentral Banks, FinancialSupervisors and telecomsregulators.

Not finding a balancebetween the interests andmandates of each institution.

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RecommendationsAddressee Goal Recommendation Risks and issues

FinancialInstitutions

Expand access tofinancial services

While the ideal model Bank +Telecom Operator is taking off,

there are great opportunities forother financial services providers,specially money transferorganizations and micro financeinstitutions.

A leading bank or telecomoperator becomes a market

leader / monopoly

To offer more secure andcomplete MFS.

To reach agreements with telecomsoperators in order to benefit fromtheir greater reach and access tothe SIM.

Conceding total control of theoperations to MNOs, insteadof benefiting from thestrengths of both.

To achieve a betterknowledge of customers

To research the market to find outthe habits and necessities of theBoP.

Misinterpreting the needs ofpotential customers.

To offer greaterconvenience tocustomers

To design channels, products andservices specifically designed forthe BoP (transformational).

Aiming at complete butexcessively complexsolutions.

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M-Banking: Opportunities and barriers for the development ofMobile Financial Services in Latin America and the Caribbean

http://www.iadb.org/mif/forum/mbanking.cfm

http://www.fundacion.telefonica.com/forum/blogs

Date post:	09-Apr-2018
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