Today, the GSMA is releasing a new publication on mobile financial services in Latin America and the Caribbean (LAC), which provides a snapshot of the current state of mobile financial services in LAC, analyses the commercial models being employed in different market segments, and discusses the regulatory evolution that has helped shape the industry.
Great progress has been made in deepening financial inclusion LAC over the last three years, according to the most recent World Bank Global Findex statistics.[1] The region has seen a major increase in the number of adults with bank accounts, from 39% in 2011 to 51% in 2014.[2]
In parallel, LAC has emerged as a strong newcomer to mobile money. Last year the region had the fastest growth in new registered mobile money accounts globally, [3] and a greater number of deployments are showing signs of reaching scale: three mobile money services have crossed the 1 million active customer milestone in diverse LAC markets and through distinct commercial models.
Although far from the levels of uptake and usage we have seen in Sub-Saharan Africa, LAC is notable for more diverse mobile money business models, a high degree of integration with the formal financial system, and a strong focus on building a mobile financial ecosystem from the start.
Commercial models for mobile money in LAC
By reviewing a subset of markets in the LAC, we are beginning to see a picture emerge of what could drive mobile money growth in the region, as well as the hurdles providers might encounter. This publication provides an analysis of two types of LAC markets in particular.
Type I markets—the poorest countries in the region with relatively low banking penetration rates, such as Bolivia, El Salvador, Guatemala, Honduras and Paraguay—are characterised by mobile operators taking the lead in launching mobile money services to fill a banking infrastructure gap. Three of these markets—Paraguay, El Salvador, and Honduras—feature in the top 15 mobile money markets in the world when ranked by 90-day active accounts as a proportion of the total adult population. [4] Nevertheless, these deployments will require new partnership development to offer an expanded range of products and services that drive value for consumers and improve the bottom line of the provider. Operators must be deliberate and intentional in building a digital financial services ecosystem and achieving interoperability with other financial services providers in these markets.
Type II markets—relatively wealthier LAC markets with robust banking sectors, such as Brazil, Mexico and Panama—have produced a range of integrated partnership models between operators, financial institutions, retail chains and others. Interoperability and ecosystem development are central to the DNA of many mobile money deployments in Type II markets. Companion cards are common [5], as well as integration with existing banking infrastructure (i.e. banking agents and ATMs for distribution, national clearing and settlement systems). While these models have the potential to go far, and some of these deployments have attained considerable uptake, they are also more complex and prone to risks relating to institutional power plays and escalating prices for consumers. It will be critical for each entity to carefully manage these risks and stay customer-centric.
Other LAC markets may be hybrids of these market archetypes, or display entirely different approaches to mobile money altogether. Two LAC markets in particular have attracted international attention for their highly unique approaches: Peru and Ecuador. In Peru, based on an initiative of the Association of Banks (ASBANC), a group of more than 30 e-money issuers are preparing to launch an open and interoperable e-money platform. In Ecuador, the central government is the only issuer of e-money, as established by a legal framework issued in 2014.[6] Ecuador has thus opted for a policy approach to mobile money instead of a commercial approach. These efforts are in early stages and will be studied by industry stakeholders for years to come.
Regulatory evolution for mobile money in LAC
Greater regulatory clarity has contributed to the growth of e-money services in LAC in recent years though there continues to be a steep mountain to climb. As of April 2015, six of 19 (32%) mobile money markets in LAC have an enabling environment for mobile money, up from only two in 2012. [7] By comparison, regulations in ten of 13 (77%) East African mobile money markets, and 47 of 89 (53%) mobile money markets globally, are considered ‘enabling’.[8]
An open and level playing field where regulation allows both bank and non-bank mobile money providers into the market is essential for mobile money to succeed.[9] With adequate prudential regulations and risk-based know-your-customer procedures, mobile operators can safely issue e-money and contribute to financial integrity, stability, and growth.
Widespread adoption and usage of mobile financial services in LAC still has a long way to go, but we are encouraged by the growth of successful deployments in the region, the range of business models being adopted, and regulatory evolution in select markets. Competition is clearly heating up, and with it, the level of investment and interest from the private sector.
Notes
[1] Global Financial Inclusion Database (Global Findex) 2014, World Bank. Available at: http://www.worldbank.org/en/programs/globalfindex
[2] The Global Findex defines this metric as the percentage of respondents (adults 15+) who report having an account (of their own or together with someone else) at a bank or other type of financial institution.
[3] GSMA, 2014, “State of the Industry: Mobile Financial Services for the Unbanked”.
[4] GSMA Mobile Money analysis
[5] Nearly a third of all deployments in LAC offer companion cards, compared to just 16% of services in East Africa. Notably, close to 80% of deployments within Type II LAC markets offer companion cards.
[6] Resolución No.005-2014-M de la Junta de Política y Regulación Monetaria y Financiera
[7] These include Bolivia, Brazil, Guyana, Nicaragua, Paraguay and Peru. Uruguay also has an enabling regulation for mobile money and in fact issued the nation’s first e-money license to Redpago in April 2015. As Redpago has not formally launched, it is not yet included in the GSMA MMU Tracker. Thus, Uruguay is not categorised as a “mobile money market” in this analysis.
[8] GSMA Mobile Money analysis
[9]Simone di Castri, 2013, “Mobile Money: Enabling regulatory solutions”, GSMA Mobile Money for the Unbanked (MMU).