Banking the unbanked: Mobile operators are key to fostering financial inclusion in Latin American countries with underdeveloped financial systems

25 August 2015

While some countries are prepared for emerging mobile payment solutions from device makers and online companies, others rely on mobile operators. 

Several Latin American countries have the elements in place to drive the adoption of mobile payment (m-payment) solutions: a vast population still underserved by formal financial services, high penetration rates of mobile subscriptions and an increasing m-commerce market. This combination has been attracting financial institutions, handset manufacturers, online companies and mobile operators to participate in the m-payment value chain in Latin America.  

The m-payment concept can include different forms of payments: payments for online purchases using the mobile device’s browser or mobile applications (m-commerce), person-to-person payments made through mobile wallet or mobile money applications (airtime and P2P) and payments for goods and services made with the mobile device at a physical point of sale.

Despite the seemingly attractive scenario in Latin America, stakeholders must assess the development of the financial system and the usage of cell phones in each country since those two components define the best business model for the implementation of m-payment solutions.  





M-payment business models in Latin America

Most of the countries in Latin America present high mobile subscription rates, driven by decreasing mobile handset prices, improved mobile coverage and poor fixed line infrastructure. On the other hand, access to credit cards varies widely across countries.

Based on the above exhibit, we can divide Latin America into three groups: 1) countries with a developed financial system and mobile telecom services market, 2) countries with an emerging financial system and a developed mobile telecom services market and 3) countries with an underdeveloped financial system and developed mobile telecom services market. 

In Bolivia, Honduras and Paraguay, the combination of a high proportion of the population that is underserved by financial services and high penetration rates of mobile subscriptions is perfect for mobile operators to leverage m-money applications at a large scale. Mobile operator Tigo has launched its m-money platform in Bolivia, Guatemala, El Salvador, Honduras and Paraguay. In Bolivia, Tigo Money increased the number of monthly transactions from an average of 139,000 to approximately 1.2m after one year of operation. In Honduras, Tigo Money reached 1m users in Q1 2015, while simultaneously in Paraguay it reached 1.7m users, 43.1% of Tigo’s subscriber base. In those countries m-money solutions serve as a key platform for financial inclusion.

In Colombia, Mexico and Peru, the emerging financial system and the developed mobile telecom services market has driven partnerships between mobile operators and banks to develop m-payment solutions. The operator-bank relationship benefits both stakeholders: for banks, m-payment solutions are a way to reach a mass market with financial services; for mobile operators, an opportunity to develop value-added services and differentiate from competitors. Telcel in México and Claro in Colombia have developed a mobile payment service named Transfer. The service is provided in partnership with Banamex and Inbursa in Mexico, and two Alva Group banks in Colombia. Transactions are conducted via SMS, so any subscriber with GSM feature phones or smartphones with messaging capability can sign up for the service. Users can send money to other subscribers within the same carrier network, transfer money to bank or mobile accounts, pay bills, buy airtime and withdraw cash using their phones and the ATM of the partnered bank.

In Argentina, Brazil and Chile, with developed financial systems, mobile operators have faced difficulties fostering usage of m-money or m-payment solutions, mainly due to the competition with alternative forms of payment that are already largely adopted such as debit and credit cards. Within those countries, m-payment is increasing its presence in the form of online purchases using the mobile device’s browser or mobile application (m-commerce), which opens the opportunity for new market entrants such as device makers (Apple Pay) and online companies (Google Wallet). Mobile operators have closed strategic partnerships with credit card brands to create co-branded credit cards in order to increase brand awareness and provide loyalty program promotions. In Argentina, Claro has a co-branded credit card with Visa. In Chile, Entel has a co-branded credit card with Visa. In Brazil, Oi has a co-branded credit card with MasterCard. 

- Marcelo Kawanami, Senior Analyst


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