In spite of Colombia’s tumultuous political history, President Alvaro Uribe’s democratic security policy and pro-market reforms have resulted in an enhanced investment climate and burgeoning telecom market. Between 2003 and 2008, Colombia grew as never seen before:  on average 5.5 percent of GDP each year, exceeding growth in Brazil, Chile and Mexico.  However, unlike its neighbours who used this period of growth for poverty alleviation, Colombia’s poverty levels remained relatively unaffected and the country still suffers from  shocking levels of income inequality – among the highest ones in the world – and its internal conflict has also resulted in large segments of the population being internally displaced.  Individuals and families forced to flee their rural villages and move to the bigger cities have resulted in rates of urbanization of over 80%.  This phenomenon, along with a relatively developed banking sector with over 5000 bank branches and 9000 ATMS could potentially deter the emergence of the “send money home” proposition that has been so successful in other regions.   For example, a recent study by Aishwarya Ratan at Microsoft Research India highlighted the impact that urbanization rates can have on the latent demand for domestic remittances.  This issue is not particular to Colombia, as we see a similar pattern emerge in other Latin American countries with high rates of urbanization, where the need for remittances will most likely come from abroad rather than domestically.

Nevertheless, in spite of these obstacles, mobile penetration is hovering around 90% and the government is deeply committed to the financial inclusion agenda, and is currently looking into new ways of providing cheaper and more ubiquitous financial services to the unbanked population, which currently stands at 40%. In addition, comprehensive regulatory changes in the last couple of years have enabled banks to use agents.  According to CGAP, agent regulation is favourable and flexible, whereby basically any type of legal entity can act as agent of a fully licensed financial institution and deliver financial services on its own premises. However, the business case for banks and agents has not been as appealing as expected and there is still a long way to go in terms of agent uptake.

Nevertheless, there are signs that the three major players in the market:  Comcel, Movistar and Tigo Millicom are looking into ways of tapping the unbanked market.  To understand more about these developments, MMU recently had a conversation with Carlos Moya, director of the Banca de las Oportunidades, a government agency that lobbies for financial inclusion, about their new Familias en acción“.   FEA is a conditional cash transfer program started in 2002 by the Colombian government as a result of a series of macroeconomic shocks which had particularly adverse impacts on poor households. The program aims to provide direct monetary support to beneficiaries (usually mothers or head of family) subject to compliance with goals in education and health (ensuring school attendance for children and a keeping up to date with their health checks and vaccinations). Currently this program disburses 3 billion dollars and  reaches over 2.9 million of the poorest families in the country and the government plans to partner with Comcel, the largest operator with a market share of 65% to show via an initial pilot how the mobile channel could facilitate these payments more cheaply and more conveniently.  If successful, the plan is to expand this to the whole “Familias en acción” program in the next twelve months.

Another DDDedo.  This third party led deployment is in the process of consolidating a large network of agents in the country, focusing on ‘mom and pop shops’ which are the places where BOP customers tend to purchases their goods.   Taking advantage of the country’s agent regulation, DDDedo has created an alliance with Banco AV Villas and plans expand to rural areas playing the role of a correspondent for the bank. Their goal is to sign up 35,000 shops this year eventually providing transactions such as bill payments, deposits, withdrawals, and transfers.

Along the same lines, Telefonica Movistar has partnered with the IADB, the Colombian National Federation of Coffee Growers and Banco de Bogota for a mobile payments pilot program in the departments of Santander, Caldas and Risaralda, more commonly known as the coffee region.  This initiative which will eventually benefit more than 300,000 coffee growers in the country enabling them to transact via their mobile phones, the money which is currently being remitted by the association as means of payment for their coffee.  This is currently being done via a smart card, but now they will be able to deposit and withdraw money from commercial establishments in the region and also receive up to date coffee price information, check their coffee card balance and latest operations in their cards.  In the first month of the pilot, coffee farmers made more than 1,300 transactions via SMS significantly reducing cash handling and time spent travelling between their farms and the villages.  Perhaps with time, due to the cost of cash handling in areas with security problems, we will see more models emerge like this one or the one highlighted in a recent  post about Coca Cola distributors in Tanzania.

Next week, we will explore the sleeping giant: Brazil and examine the current market dynamics, which are helping shape the development of mobile money and branchless banking.