Although penetration of mobile services in Latin America remains high, the proportion of the unbanked population is still significant compared to other regions in the world. Also, the unbanked population sometimes relies on cash or over-the-counter transactions instead of electronic ones.
In Latin America, there are 16 deployments for the unbanked population, and most partnerships between telcos and banks have launched recently. Brazil and Colombia have the majority of initiatives in the region.
Telcos could leverage mobile wallets to increase ARPU through revenue share or preferred placement opportunities. Value can be added to the mobile wallet experience by helping deliver marketing and customer support services.
Top Opportunity Indicators
High Mobile Services Penetration
Mobile services penetration is driven by the increased functionality and affordability of mobile phones. Mobile phones are highly popular and the most-often-used devices for going online.
High Percentage of Unbanked Population
The provision of financial services to the population without bank accounts includes micro and peer-to-peer transactions. Many people in Latin America receive cash income and do not have an established bank account. This leaves them outside of the financial system, including savings accounts and credit or debit cards.
High Demand for Safer and Convenient Payments
Safety/convenience is key for the population that uses cash frequently and/or pays bills in person. A concern regarding carrying cash is the real and warranted fear of being robbed, which is common in the region.
Considerable Increase of Mobile Payment Solutions and Partnerships
Many telcos announced mobile money and payment initiatives in the last 3 years. Market leaders will have penetrated the market enough to guarantee success of the mobile payment ecosystem. Awareness of mobile payments is increasing with the number of people who have tried it and the number of people who will continue to use it.
Challenges to Overcome
Data Security and its Liability on Key Stakeholders
Security remains a major pain point across Latin America. Susceptibility of a payment method to fraud during day-to-day operations or after a device is lost/stolen is a concern, as it is tied to the liability borne by telcos.
Lack of Mobile Wallet Familiarity
Lack of incentive to adopt mobile payment methods encourages customers to continue with traditional payment methods. Education is essential for the use of electronic services.
Preference for Cash in Countries with Developing Economies
In cash-based societies, merchants have been known to reject payment methods that cost more than cash—especially credit cards, as the customer can still pay by cash below a minimum threshold. This practice happens in developing markets despite the merchants technically causing a breach in their agreement with acquirer banks. Some customers also prefer to use cash for small-ticket items and as an effective means of budget control.
Lack of Interoperability across Platforms and Devices
Mobile payment methods lack the interoperability and seamlessness of traditional payment methods. Mass adoption is hampered by the need for multiple physical interfaces, such as near field communication (NFC), QR codes, apps, and unstructured supplementary service data (USSD). Low interoperability reduces the mass adoption of the service.
The Last Words
There will be a gradual increase of mobile money and payments in developing markets, however, cash will remain the dominant payment method.
Mobile wallets will evolve into platforms with payment methods, loyalty/rewards, loans, insurance, and memberships added on as apps where customers can add their cards and details. Mobile wallets will eventually replicate physical wallets and the personal banking experience.
Sapan Agarwal | email@example.com | +603 6204 5830