Friday, 15 June 2012 10:07 | Mary Gramaglia, Director of Sales, mCommerce, Sybase 365
Latin America’s adoption of mobile commerce solutions evolved throughout 2011. Many financial institutions revisited their deployment of mobile banking, and mobile network operators formed mobile payments alliances - most notably America Movil, which formed a joint venture with Citibank, and Telefónica, which partnered with MasterCard.
However, despite clear progress no deployment emerged to captivate the market in an iconic fashion. Moreover, person-to-person (P2P) transfers and mobilised bill pay services—the basic use cases so prevalent in Africa—are unlikely to resonate with such magnitude in Latin America.
What, then, might be the roadmap for the region? Will there be a “typical” deployment, or will we see a complex fabric of participants whose solutions will adapt to the market realities of individual countries and subregions?
Let’s begin by acknowledging a few realities that have influenced mobile commerce deployments in Latin America.
The region’s complex regulatory environment virtually dictates that mPayment deployments will not emerge in isolation. Instead, they will be the result of carefully crafted ecosystems powered by distinct players in finance and telecommunications, all operating within well-defined frameworks.
Case in point: the concept of providing mobile wallets, whose sole funding instrument is the stored value account, as in Africa, is not relevant in much of the region. In fact mobile wallets are emerging as a catalyst to achieve financial inclusion. In Guatemala, for example, new regulations are requiring that mobile wallet holders establish bank accounts if they do not already have them, thereby converting upfront the unbanked population into banked.
Other countries are taking a more nuanced approach. Mexico, for example, has established a multi-tiered framework for the mobile wallet registration process. This approach balances the need to engage in adequate Know Your Customer (KYC) checks during the mobile wallet registration process with the desire to simplify registration. Accounts opened at the lowest tier-1 level may be done so anonymously, but with significantly fewer transactions and smaller deposits permitted. Accounts opened with greater disclosure are allowed more transactions and larger deposits and will be tied to savings and payment products designed to meet user needs.
Latin America has an increasing urban population, a large percentage that is still rural, and widely divergent socio-economic levels. As a corollary to income, education impacts social strata, as with advanced schooling comes greater exposure to technology, higher disposable income and increased access to financial services. Central America, for example, is home to some of the region’s lowest-performing economies, with a comparatively greater percentage of its population poorly educated and living in poverty (Honduras and Nicaragua) than the more flourishing (albeit still somewhat troubled) economies of Argentina, Chile and Uruguay.
Education and income will affect how mobile payment projects are conceived and deployed. A rural citizen of Honduras is more likely to find compelling a mobile wallet solution, deployed with SMS or unstructured supplementary service data (USSD) channels, that enables government disbursements, P2P transfers and bill payments. Argentina’s urban porteños will be enthused by a mobile wallet that accumulates loyalty points and enables discounts at popular restaurants and retailers, particularly when retailers leverage smartphone GPS capabilities. Honduran citizens are more likely to fund their mobile wallets with stored value accounts, and in Argentina residents will be more inclined to link mobile wallets to their bank accounts.
Brazil’s situation represents an opportunity to target both groups. In Brazil, a global powerhouse, the population’s income levels cover the entire spectrum of very poor to very rich. Participants in the mobile payments ecosystem in Brazil could thus do very well targeting any group along the economic spectrum, or choose to have different strategies for distinct market segments.
Developing an Ecosystem
How financial institutions and mobile network operators choose to enter the mobile payments arena will thus depend in part on a given country’s regulations governing mobile wallets, the profile of its population and its targeted market(s). Another characteristic to consider is the condition of any existing third-party agent networks and whether they will be a logical venue for registering mobile wallet users, particularly the unbanked. (Users who are banked may also choose to register through a third-party agent, but are more likely to be directed to on-line portals.)
Agents who specialize in airtime top-up could have the desired ubiquity but may not be in a position to handle the KYC requirements associated with mobile wallet registration. In addition, some agents may not have sufficient liquidity to support users’ cash-out requirements, and others may not have the controls required to handle cash-in transactions. As in Brazil, where major financial institutions (Banco de Brasil, Bradesco and Caixa Economica) have a long history of working through third-party agents, countries in which agents already provide some type of financial service and whose principal business is not airtime top-up will have a ready-made infrastructure to facilitate the launch of mobile payments.
One potential mPayments ecosystem participant for Latin America is the retail sector, including large national chains (Elektra, Sanborn’s in Mexico), supermarkets and foreign firms with significant name recognition (Carrefour, Walmart). Frequented by rich and poor alike (although in varying degrees and for different products), large stores have the infrastructure necessary to register users and verify identity, as well as the products many mobile wallet participants will want to purchase. Moreover, large stores do not face liquidity challenges (many already offer some form of financial services). And although in more developed markets retail mPayments are launching with point-of-sale terminals and mobile devices outfitted with near field communication (NFC) capabilities, in Latin America more basic channels such as SMS and USSD can be adapted to enable purchases with the more prevalent lower-end phones.
Another advantage of including retail chains in the mPayments ecosystem will be the ability to incorporate loyalty points and discounts and thereby further use of the mobile wallet. In addition, merchant-acquirer networks that participate in the mPayments ecosystem can also expand purchase options for mobile wallet users. (It is no surprise that in launching its mPayments solution for the region Telefónica has chosen to partner with MasterCard.)
No One Way
In Latin America, mobile payments can be deployed in several ways, but the models of Africa and Asia are not necessarily instructive. Ecosystems will evolve that bring together a variety of participants. Regulatory requirements will necessitate that the financial sector, which is awakening to the market potential of the region’s unbanked, take a leadership role. Large MNOs—America Movil, Telefónica, Digicel, Millicom, Brazil’s Oi and Vivo, among others—have significant subscriber bases and in many countries are viewed more favorably than the banking sector. Large retail chains can handle mWallet registrations, cash-in and cash-out requirements and provide both necessary and discretionary goods that mobile purchasers will buy. The right agent networks can extend their reach into smaller, more rural communities, and merchant-acquirer networks can expand mPayments ecosystems to retail establishments beyond the well-known chains.
About the author
Mary Gramaglia, director of sales, U.S. and Latin America, Mobile Commerce, is responsible for sales of Sybase 365’s mBanking solutions to select U.S. financial institutions, as well as sales of the firm’s mBanking, mPayments and mRemittance solutions into the Caribbean, and Central and South America. Gramaglia has extensive international experience in both the telecom and financial services sectors and has worked for Lockheed Martin, Sprint International and Citibank.
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