Most digital wallet products in Latin America and around the world are brought to market by banks or telecom providers. Think BBVA Wallet (bank), mPesa (mobile operator) and Apple Pay and Samsung Pay (mobile technology companies). Wallets are also decidedly a payments play: their primary function is to enable electronic/mobile payments…so very few wallets offer other value-added features.
Most of these products have floundered since their launch. BBVA Wallet, launched in Mexico, Colombia, Peru and Chile, is successful at attracting users but not at generating volume. Contactless mobile wallets in the U.S. continue to struggle even after heaps of publicity. According to Fortune, while up to 30% of smartphone users in the U.S. are registered with Apple Pay or Samsung Pay, only 8% and 6% of people use these wallets (respectively) at least once per week.
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It may be time to re-think digital wallets altogether. This requires taking some creative license when defining digital wallet. Most think of a wallet as a financial product that closely resembles a bank. In reality, however, a digital wallet can be defined as any platform enabling an electronic payment that acts in lieu of physical payment credentials.
Who else besides banks and telecoms would be well-positioned to offer a digital wallet and why would they do so? Evidence suggests that consumer brands—including merchants and e-commerce platforms—may be better prepared to offer digital wallets to consumers in Latin America than banks…and they may have a better chance at succeeding. In this article, I offer two such examples.
#1 RAPPI: INVISIBLE PAYMENTS SOLVING MULTIPLE PAIN POINTS
The first is Rappi, the rapidly growing Colombian start-up, which combined the virtues of Instacart, GrubHub and Task Rabbit and built them into one mega on-demand platform. Founded in 2015 in Bogotá, Rappi just completed a $200 million fundraising round. It has expanded to six cities in Colombia, five cities in Mexico and also to São Paulo, enabling customers to order everything from groceries to liquor to lunch and even a fourth person to join a PlayStation game (really).
Why might Rappi be considered a digital wallet? Because it enables invisible, card-on-file payments that feel like magic to the consumer. Users load their payment information onto the platform once and never worry again; payment is automatic and frictionless. Of course, Uber was the first to evangelize the model of the invisible payment. But companies like Rappi are expanding it to a countless variety of purchase types, even enabling invisible P2P payments.
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If a Rappi customer doesn’t have time to make it to the ATM, a Rappitendero (as Rappi delivery-people are called) can deliver it to his home, via Rappi’s newest service, Cajero ATM. With one tap on their smartphone, customers can even have cash delivered to a friend or relative; here, Rappi has created a brilliant new way to deliver P2P payments, by hybridizing a techie mobile app with age-old cash in hand. This satisfies the needs of both sender (urban, young, time-crunched, tech-savvy) with recipients (laggard tech adopters who prefer cash).
Becoming a Payments Player?
This pivot into payments signals to the industry that payments innovators need not be payments companies. Let’s face it—many global e-commerce platforms, including Amazon, WeChat and Latin America’s own MercadoLibre—eventually launched their own spin-off payment solutions. But even if Rappi does not go this route, it is silently, and maybe unknowingly, positioning itself as a digital wallet. Rappi customers give Rappi digital copies of their physical cards and proceed to consume to their heart’s desire without thinking about the invisible payment taking place.
Adding Real Value
Rappi has managed to go one step further as a digital wallet by offering a subscription service. Customers who load a credit card onto the platform are eligible for Rappi Prime, which offers unlimited deliveries for a set monthly fee. Rappi, and other card-on-file merchants and platforms, are achieving what countless digital wallets are botching: replacing physical cards.
They are also doing something digital wallets consistently struggle to do: to truly add value to the customer checkout experience. Invisible payments are far superior to other card-not present and even card-present transactions. They are effortless and instantaneous. Additionally, Rappi solves customer pain points by offering affordable, fast deliveries of almost any product imaginable on one uniform platform. Traditional wallets simply enable a payment…without offering any other benefit.
Many consumers have credit cards and all consumers have cash, so a wallet that acts only as a payment method seems redundant. When a merchant or e-commerce platform enables a payment, they are providing access to consumption of their products. Standalone digital wallet products cannot make the same claim.
#2 AMAZON CASH: A SUCCESSFUL PREPAID WALLET?
In 2015, Amazon launched full retail operations in Mexico and has been scaling up its operations in this country since. In a highly strategic move, the marketplace launched Amazon Cash, a prepaid account to enable non-credit card purchases, in Q4 2017.
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Most cash-based e-commerce transactions in Latin America follow a voucher model, in which upon placing an online order, the customer receives a voucher with a barcode containing the transaction details. The customer then takes this voucher to an affiliated agent, usually a convenience store, supermarket, or bank, to make the payment in cash. Leading convenience store chain OXXO is famous for enabling this capability and for creating its proprietary cash-based payment method, OXXO Pay. Amazon took a different route however, requiring customers to pre-load a digital account by paying cash at an affiliated convenience store. These funds may be used make a purchase at a later time.
Will Amazon Be the Exception?
Now, this approach by Amazon is nothing new: countless digital wallet providers have enabled such a model, asking consumers to load funds onto a wallet that can later be used to top-up mobile airtime, pay bills or make other purchases. Most have flopped; the underbanked population whom these wallets serve are especially skeptical of digital platforms and fear losing their money; cash in hand provides a sense of control. However, one could speculate that Amazon, with its mighty brand power, impressive product portfolio and rock-bottom prices, could be the one to convince consumers to convert their hard-earned pesos into digital funds.
Euromonitor reports that Amazon grew 106% in Mexico in 2017, with sales of $502 million. This means that within two years of launch, Amazon overtook rivals MercadoLibre and Walmart. It also rolled-out its loyalty program Amazon Prime in Mexico in 2017. With Amazon Cash newly launched, growth will continue to balloon through 2018, considering that market-wide, cash-based payment methods make up an estimated 19% of all e-commerce transactions in Mexico. Amazon Cash also has the benefit of eliminating order abandonment. With post-paid cash payment models used in LatAm e-commerce, consumers can make the payment days after the order is placed. As a result, some 60%-70% of these post-paid orders are abandoned, resulting in frustrating inefficiencies for merchants. Amazon’s prepaid model avoids this.
Becoming the Ultimate Digital Wallet
What’s more, by capturing prepaid digital funds, Amazon is creating digital liquidity and loyalty. This creates fantastic opportunities for Amazon and competition for banks and card networks. If consumers are convinced to inject funds into Amazon’s ecosystem and keep them there, Amazon could offer increasingly diverse products and services, including subscription and on-demand services (think video streaming, restaurant deliveries), mobile top-ups, utility payments, credit cards, or micro-loans, essentially becoming the digital wallet to end all digital wallets.
Of course, this is contingent upon consumers treating Amazon like a bank, which is speculative at this point. Unless heavily incentivized, users are likely to incrementally load into the wallet only the funds needed to make a particular purchase. But Amazon has the money, resources, and know-how to invest in incentives and get consumers to do what it wants. It has been fabulously successful at doing exactly this in the U.S. and other global markets.
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MERCHANTS AS FINANCIAL SERVICE PROVIDERS
This argument rests on AMI’s hypothesis that merchants, e-commerce platforms and other popular brands have an opportunity to provide financial services to the underserved in Latin America. While banks fear fintech start-ups for their competitive pressures, few bankers eye merchants with the same trepidation. Truth be told, most merchants do not strive to be payments companies; they are in the business of selling goods and services. But in our increasingly digital world, the line between merchant and bank is blurring; WeChat’s and Alibaba’s pivot into payments provides such evidence.
Given that nearly 50% of Latin Americans continue to be underserved by banks, the opportunity for merchants to offer consumers financial products is still present, increasingly so as merchants climb the digital learning curve faster than banks. For wallets to scale, and for financial inclusion to be realized, we may need to broaden our scope of what a digital wallet is and who can—and already is—offering it.
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