According to the World Bank, around 60% of Latin Americans – 250 million people – lack access to banking services. However, mobile penetration rates in the region are somewhere between 90-100%. The conclusion: mobile has the potential to go a long way in financial inclusion.
Along such lines, it’s no surprise that the topic of mobile payments is on the tips of the tongues of many members of Latin America’s tech ecosystem – from entrepreneurs to developers, corporations to small businesses. And, of course, m-payments represent an unprecedented opportunity for financial institutions and banks.
Should they play their cards right, Latin America’s banks stand to reap big rewards from mobile payments. The terrain, however, remains tricky, as the region’s path hasn’t been forged just yet.
What are the region’s banks thinking when it comes to mobile payments? Jeffrey Bower, International Director for Mobile Payments at Scotiabank, and Marcelo Scaglia, Managing Director at Banamex/Citi, shared their perspectives on m-payments in LatAm with M for Mobile.
Opportunities Still Taking Shape
Bower and Scaglia aren’t new to the mobile payment field, nor are the banks they represent. Scotiabank launched TchoTcho Mobile in Haiti (following a devastating earthquake that hit the nation) a few years ago, one of the first successful mobile money projects in the region. And Transfer Banamex, a joint venture with América Móvil, boasts 70% market share in Mexico.
Despite their experience, however, both acknowledge that much of what’s to come in m-payments remains unknown. “There is no simple answer to mobile money,” Bower reflected. “The key is to understand your market and to learn to co-operate with entities you are not used to cooperating with.” He outlined his perspective of the lay of the land:
In the last five years, the level of financial inclusion around the world has increased at an unprecedented rate. Technology enables these massive shifts. It allows customers to access a service wherever they are and whenever they want, and often at a cost lower than with traditional systems.
Mobile helps financial services providers to get closer to consumers who were previously considered unbankable. “We see the possibility of building a completely new banking model to serve this segment of the market, and cross-sell traditional products as well as new microproducts,” Scaglia commented.
A Consumer Focus
Understanding consumers is a key element in all of this, and banks are well on their way, given the plethora of behavioral data made available by the boom in electronic transactions. Bower, however, remained cautious on this point:
The first question in mobile money should always be: ‘What problem is mobile money solving for the consumer?’ The second question should be ‘How can we work together to make this happen?’ Too often, entities focus too closely on their own internal goals, rather than focusing on the needs of the group and the consumer.
Scaglia echoed Bower in emphasizing the importance of consumer focus in all of this:
The most important business decision is to focus on what the customers need and not be confused by creative solutions that seek a ‘problem to be solved.’ In this regard, education of the customer is important for success, but really it is easier to spur adoption when you have a solution that fits their specific needs.
Banks also have to recognize that they’re not dealing with just any consumer – they’re working with Latin American consumers, who have their own unique set of characteristics.
“You have to create a product that makes sense for people to use,” Bower affirmed. In Latin America, that means educating potential clients on the value of financial services and offering products that make sense to them. For example, words like bank account and savings may turn those with lower incomes off, as they don’t believe they have the potential to save. Moreover, individualistic concepts of funds ownership may also deter the region’s unbanked and underbanked.
The Other Side of the Coin: Merchants
“We have to consider two different kinds of merchants, the type that today has a POS and is already part of the current banking platforms for acquiring transactions, and the ones that are small or, in general, prefer not to participate in current payments methods and operate totally in cash,” Scaglia explained.
The first requires a new solution that fits their needs and doesn’t dramatically alter their current way of operating. The second opens up the door for more varied solutions, but they’ve got to be convinced there’s a real, tangible benefit. Scaglia added:
You have to understand the pain points for the merchants. Otherwise all you have is an intelligent solution that will not be attractive for them.
What merchants also need are standards, “You can’t expect merchants to accept 15 different kinds of this new form of money,” Bower remarked, adding, “Herein lies the value of working with a large partner, like a telco, a large retailer, or an association like Visa or MasterCard that can set national or regional standards and perhaps link existing systems together. They have the ability to establish the rules for banks to agree to.” Having standards in place will likely lead to wider mobile payment adoption.
Despite the (numerous) obstacles in place and the (miles) of ground to cover, both Bower and Scaglia expressed optimism with respect to the potential of mobile payments. Bower explained:
In Latin America and the Caribbean, 70-80 percent of the population is unbanked or underserved. That is a massive number of people. Estimates show that between a third and a half of a country’s overall population are potential users of mobile money. This means that the vast majority of the region does not have access to financial services and there is a huge potential to provide these in some form. With mobile penetration nearing 100 percent, this is an important channel to explore.
His deduction: mobile financial services will take off in the years to come, as long as the necessary pillars are in place.
Scaglia has similarly high expectations for mobile payments in Latin America and for Banamex specifically, explaining that he expects to reach more than five million customers in Mexico with Transfer over the next five years and roll out the solution in other regional markets. “Success will be related to our ability to work with the authorities and the different regulations to create an environment that allows business growth,” he affirmed, concluding:
Nobody has 100 percent control of the key success factors in introducing and developing this kind of business. At the beginning, each player said ‘I am the key player,’ but with time to negotiate and compare visions, everyone now understands that we need each other to be successful and provide the right solution for the market. Unless everyone is a key player, then you don’t reach a successful solution, because everyone is pushing in their own direction, instead of having a collaborative vision.