In May 2010, the Mobile Money Summit will be held in Rio de Janeiro, Brazil. While the event has a global remit, it will provide a unique opportunity to highlight the coming of age of Mobile Money for the Unbanked (MMU) in Latin America. In anticipation of the event, I will be writing a series of posts focusing on the region, showcasing along the way the current opportunities and challenges in the deployment and implementation of mobile money. This will be a 3-part series, with each post to follow focusing on developments in the following Latin American regions:

– Southern Cone and Brazil
– The Andean region
– Mexico and Central America.

The mobile money phenomenon is a relative late comer to the region, and experts both in the telco, banking, and development sectors seemed baffled by its slow uptake when compared to frenzy seen in Africa and East Asia. Thus far, a key barrier to growth has been the restrictive regulatory environment, but this hurdle is slowly being overcome and 2010 is looking like the year when mobile money will finally take off. Sweeping regulatory changes on branchless banking are being introduced in Peru, Colombia and Mexico, and as a result, innovative initiatives are starting to spring up, taking into account the local socio-economic context. Regional players such as Telefonica and Tigo Millicom have started rolling out pilots proving that telcos in this region are also eager to jump on the opportunity.

Before diving into our series, it is important to highlight that Latin America is a highly heterogeneous region. Even though it shares a historical common heritage, a couple of factors distinguish this region from others: its enormous gap in income distribution, along with its wide-ranging levels of economic development; rates of access to financial services; and different levels of mobile penetration. South America is the most unequal continent and this feature, along with the massive uptake of mobile communications poses a unique, yet complex environment for mobile money to emerge in. A recent study by Fundacion Telefonica and AFI – Analistas Financieros Internacionales found that mobile solutions are already being used by banks in many LAC countries such as Brazil, Chile, and Colombia, but these are mostly used to access bank balances and only in very few cases to make payments (with some exceptions such as Argentina and Brazil). Furthermore, these deployments are directed at banked users and serve as an additional distribution channel, next to the more traditional bank branches and ATMs. This is a first step, but the question that remains unanswered is when will these solutions begin to trickle down to the unbanked and how? It is, after all, this lack of access to financial services that is one of the pillars that obstructs people’s paths to better socio-economic wellbeing. In 2009, 80 percent of Latin Americans carried a cellphone, but only 30 percent had access to basic financial services. (Source: World Bank and Wireless Intelligence)

As a result, policy makers and regulators in the LAC region have been facing the challenge of reconciling the development of branchless banking with the emergence of mobile money and the effort to increase levels of financial access. In addition, Latin American migration to the United States has been the most dynamic migration pattern in the world; as the largest recipients of cross-border remittances, unbanked customers in countries like Mexico and Brazil are in a strategic position to take advantage of mobile money services combined with branchless banking. Moreover, as CGAP recently highlighted, the rise of g2p payments and the vigorous growth of the MFI industry in Latin America will create a further dependence on mobile branchless banking over the coming decade.

We look forward to updating our readers next week with a survey of the Southern Cone and Brazil. Already many questions arise about an emerging Latin American model and we hope that these series will clear the air and pave the way for further research in the region.