Written with contributions from Simone di Castri.

The basic proposition for mobile money to succeed is to create an open and level playing field that allows both banks and non-bank mobile money providers, including mobile network operators (MNOs), into the market. Anecdotal evidence, commercial lessons, and international regulatory principles all speak in favour of opening the market to providers with different value propositions and business models. Best practices are well established at both the regulatory and commercial level to guarantee the soundness of mobile money schemes and contribute to the integrity and stability of the financial system.

Inspired by the success of mobile money in markets with an open and level playing field, policymakers and regulators in Latin America are increasingly recognizing the critical role MNOs play in the provision of mobile money, and are creating frameworks  which allow competition of business models.  Earlier this year, Xavier Faz at CGAP discussed the new wave of e-money in Latin America, highlighting regulatory changes that enable non-banks to issue e-money in key Latin American markets.

Most recently, the Central Bank of Brazil and the financial services regulator in Peru (Superintendencia de Banca, Seguros y AFP, hereafter referred to as SBS) have issued regulations that foster a healthy and competitive ecosystem for mobile money, in the spirit of promoting greater financial inclusion.  In October, the SBS issued much-anticipated regulations in support of the January 2013 mobile payments law which allows non-banks to issue e-money (Law 29985). And the Central Bank of Brazil has recently unveiled guidance for the roll-out of mobile payments under the law signed October 2013 (Law 12865). This comes as a significant complement to globally-recognized legal frameworks that support correspondent banking models.

The regulation unfolding in Brazil and Peru relating to mobile payments follows similar general principles. The regulation in both markets allows for the creation of a new and specialized legal entity for e-money issuers under license from the financial sector authority. In Brazil, this new legal entity is known as a payments institution, while in Peru it is referred to as an e-money issuing company (or EEDE, for Entidades Emisoras de Dinero Electronico). In line with international best practices around safeguarding customer funds, licensees must set up a trust account equal in value to the amount of money issued electronically, and non-bank e-money issuers are not allowed to intermediate funds. [1]

Notably, both markets have called out interoperability of mobile payments instruments as a key principle and objective, though it is not mandated. According to Camilo Tellez at CGAP, interoperability in Brazil is “signaled as a goal further down the road, and any new service which receives a license will be required to have a clear roadmap of how it will eventually interoperate with the wider financial ecosystem.” From discussions with the Brazilian central bank, they have indicated that they will offer licensed payments providers access to the clearing and settlement services provided by the central bank, but not mandate any particular solution. In Peru, the law states that interoperability can be regulated by the SBS in the future.

Additionally, the financial authorities in these markets view proportionality to risks as a principle to harmonize the objectives of financial inclusion, stability and integrity. The regulatory frameworks are risk-based, allowing for simplified KYC on low-value instruments. The regulators will be issuing more details on their approach to AML/CFT and how that will play out for the customer due-diligence process.

While there is no one-size-fits-all regulatory framework, we are confident that opening the market to MNOs is likely to increase the quality and scale of mobile money. From the time the mobile payments bill was published in Brazil in May, three mobile money schemes have launched: Vivo and MasterCard’s Zuum, Oi Carteira, and Meu Dinheiro Claro.  And a fourth mobile operator, TIM, has publicly announced plans to launch a mobile wallet in partnership with the government-owned bank Caixa Econômica Federal and MasterCard. We expect new mobile money deployments to launch in Peru soon, with telcos as active participants in the ecosystem. Thus far, a planned initiative by the Peruvian Bankers’ Association (ASBANC) to offer a shared e-money platform in 2014 has captured headlines. With the regulation in place, it is now up to the private sector in these markets to invest aggressively to drive scale and fulfil the promise of mobile money as an instrument for financial inclusion.

It is encouraging to see more Latin American regulators embracing a progressive approach that aims to make retail payment systems more efficient and inclusive.  The region is ripe for innovation in mobile financial services. An enabling environment is certainly not enough, but is definitely needed if we want to untap the potential of mobile money in Latin America.