Interest in mobile phone banking technology is increasing across Latin and Central America. But it still has a long way to go before it catches up with African or Asian markets. Eleanor Wragg reports.
In a world where mobile ownership outstrips bank account access by more than two to one, the mobile phone is no longer just a tool for communication, but a potential conduit for financial transactions and economic engagement.
In African and Asian developing nations such as Kenya and the Philippines, the technology is already changing lives by bringing financial services to unbanked communities, using mobile payments known as mobile wallets.
“Access to financial services is key to enabling full participation in the formal economy. Mobile banking is one of the most promising areas for extending these services to underserved populations,” Kent Lupberger, IFC’s global head of telecom, media and technology tells GTR.
Latin America is now in the experimentation phase, and I think you’re going to see a lot of activity in this space in the next few years.”
“The social impact is huge, saving somebody who lives in the jungle a trip to make a microloan payment, or allowing them to send a remittance. Mobile money can have a really big impact on the lives of the poor, and the more people who come into the financial system, the better,” adds Greta Bull, IFC advisory services programme manager in Latin America and the Caribbean.
The IFC is the most active investor into worldwide mobile banking, and its previous investments in mobile commerce have already extended services to regions in Africa and Asia.
However, Latin America “is lagging behind” these two continents in the deployment of mobile banking services due to its restrictive regulatory environment, discouraging investors, according to a statement last year from the GSMA, which represents the interests of mobile operators worldwide.
“The Kenyan regulator has been very loose about who can participate in the mobile banking space,” says Bull.
“Meanwhile, every Latin American jurisdiction that I have looked at is requiring that a bank be in the chain somewhere. That could be that they just manage the float, or it could be that they are fully accountable. If you look at a place like Colombia or Mexico, banks are fully accountable for account openings and for maintaining cash.
“In Colombia, the regulation doesn’t particularly allow for mobile wallets. The Peruvians are looking at it slightly more loosely where there has to be a bank somewhere in the value chain, but there could be a mobile wallet that’s managed by somebody who’s not a bank.”
Regulatory change required
Sweeping regulatory changes in branchless banking are being introduced in the region, and as a result, innovative initiatives are starting to spring up.
One such initiative is that of YellowPepper, a mobile financial services provider operating in Mexico, Colombia, Peru, Ecuador, Guatemala, Dominican Republic, Bolivia, Haiti and Panama. They have just been provided with US$3mn in investment capital by the IFC, and are the first recipient of equity investment in a mobile financial services company in Latin America. “We saw that there was very little in the market in terms of financial services through the mobile phone or even enabling banks to use mobile as a channel,” says Serge Elkiner, CEO and founder of YellowPepper. “Therefore, our overall strategy is to build an ecosystem for the financial services industry to expand its services to the general population of Latin American countries.”
YellowPepper is not the only company eyeing the mobile banking space in the region. Telefonica has just announced a joint venture with MasterCard to develop a mobile payments offering. Through this mobile wallet, customers will be able to “use their mobile phones for person-to-person money transfers, bill payment, mobile airtime reload and retail purchases, among other services” in 12 countries in Latin America.
In Mexico in particular, the financial sector is undergoing a considerable transformation, laying the ground for a broad commercial offering through innovative products that reach lower-income segments of the population. Banks’ enthusiasm to reach these segments has grown over the past 10 years, following the extraordinary growth of Banco Azteca and Compartamos.
The opportunity for reaching these potential customers via their mobile phones is undeniably there for the taking. Only 19% of the country’s households have access to bank or commercial credit cards and 35% of the economically active population completely lacks any form of formal financial services. 57% of the municipalities have no banking access, and only 25% of the Mexican population has a savings account. However, there are 90 million cell phone accounts, in a population of 110 million.
In February 2010, a Comisión Nacional Bancaria y de Valores (CNBV) reform allowed mobile network operators (MNOs) to set up agent networks and manage mobile accounts on behalf of banks, based on an outsourcing relationship. This, coupled with a December 2009 regulation allowing the creation of niche banks under a license that allows deposit-taking for the purpose of processing payments, permits non-banks to obtain a license to issue e-money.
The world’s population will look back in 10 year’s time and acknowledge that mobile banking was the product of
This regulation has paved the way for companies such as America Movil, Latin America’s largest wireless carrier, which aims to offer financial services to about 50 million people in Mexico who have mobile phones and no bank account.
Meanwhile, Banamex, a Citigroup subsidiary, is reportedly considering a strategic alliance with Telcel, the mobile phone company owned by Mexican billionaire Carlos Slim, which has about 60 million customers – three times more than Banamex’s current customer base of 19 million.
These developments are also mirrored in Brazil, which is seen as a global leader in branchless banking after 10 years of back-to-back regulatory steps, evolving from more restricted possibilities to less stringent licensing conditions.
The Federal Savings Bank has developed a mobile account that can be linked to a simplified account. Vivo, the largest mobile phone service provider in the country, has hired an ex-banker and struck multiple partnerships to offer financial services and, not to be outdone, Bradesco is now partnering with mobile network operators to offer special low-value accounts.
“Ultimately I think it’s going to grow to be quite a rich space with a lot of different kinds of transactions along a web of different relationships. There are B2B applications and some initial pilots are taking place now, and we’ll see where they get. Latin America is really starting to take off, and people are figuring out the business model here. Latin America is now in the experimentation phase, and I think you’re going to see a lot of activity in this space in the next few years,” says Bull at the IFC.
Trade finance applications
The impact of rolling out mobile banking to the world’s poor is undeniable, but is there a use for mobile technology outside of this segment? Deutsche Bank certainly thinks so, as they have entered the mobile payments space to extend payments capabilities to mobile handsets for small business and corporates.
“Mobile payments offer much greater flexibility for consumers for a broad array of uses. For small businesses and corporates, unique solutions to long-standing challenges each represented an opportunity to extend our value proposition to our clients,” explains Harold Young, head of product strategy and commercialisation, global transaction banking, Deutsche Bank.
“We have developed solutions for a number of uses, including payment of freight and demurrage charges and shipping and logistics expenses, which address long-standing pain points related to global trade.
“There are a number of areas of opportunity where small business and corporate users are ready to proceed immediately – embedding mobile payments in their receivables and collections propositions in particular. This is especially relevant as the direct and indirect costs of cash and cheques become more apparent and more corporate clients are willing to partner with banks to remove these types of payments out of their funds flows entirely.”
“In terms of trade itself, mobile technology can definitely facilitate the process and make it much more efficient,” says YellowPepper’s Elkiner. “In Colombia, the Federacion Cafetera de Colombia (the government-run coffee growing and purchasing association), are running a pilot through which coffee growers can check the market price of their harvest through their mobile phone. Not only do they get the current price, they get the money for their harvest directly sent to their mobile phone.”
With the changing market dynamics that are unfolding in the trade finance area, banks are increasingly recognising the need to better understand how companies are taking advantage of new tools and technology to manage risk, streamline business processes and reduce the costs associated with trade. New technology platforms enable buyer, sellers, banks and other supply chain members to gain visibility of the flow of goods and related information.
In February, Standard Chartered launched a new mobile application designed for its corporate clients – cash and trade authorisation for Android smartphone users. This announcement follows the bank’s October 2010 launch of its iPhone application, offering authorisation capability for cash and trade to its corporate clients.
This is the industry’s first corporate banking application for Android smartphones for both cash and trade functions, giving corporate treasurers better control over their working capital transactions when they are away from their desks.
Specifically in Latin America, technology provider Surecomp worked with Latin American banks to launch Allnett, a Java-based online and mobile application.
In March this year, Banco Internacional Guatemala rolled out this programme across Latin America. The solution makes the corporate processing of letters of credit and other trade finance documents more efficient by eliminating all manual activities previously associated with such transactions.
“In many countries and regions smart phones have become a major communication channel between banks and their customers, although mostly in the retail sector,” says Joel Koschitzky, chairman of Surecomp.
“We understood that enabling Surecomp’s corporate internet-banking application on a mobile device would allow corporate users to remain in constant contact with their banks regardless of their location. Allnett provides rapid access to information, for example the receipt of an advised letter of credit or an overview on open deals, and also the option to approve new transactions or send an image of a document to the bank from any location, improving the effectiveness and efficiency of corporate trade finance users.”
“We recognised early last year that a web-based corporate access point was the missing link we needed to complement our leading electronic banking solution and to provide an integrated environment in all stages of the process for our corporate clients,” adds Francisco Naranjo Martínez, general manager of Banco Internacional Guatemala.
His comments reflect growing market sentiment that the mobile banking space will be the sector to watch in the coming years.
Speaking at March’s Mobile Money Transfer Americas conference in Sao Paolo, Brazil, Michael Joseph, former CEO and strategic advisor at Vodafone Money Transfer, observed: “The world’s population will look back in 10 year’s time and acknowledge that mobile banking was the product of the decade.”
Latin America may have caught on to the mobile phone trend later than other markets, but the foundations for the industry’s are clearly now being laid. GTR