In Payments

Latin Americans without bank accounts often have smartphones—and could represent an opportunity for mobile money services.

In Latin America—where 70% of people do not have a bank account—both the public and private sectors have honed in on financial inclusion as a strategic objective for growth. That’s why mobile financial services for the unbanked have flourished in the region since 2007—there are nearly 40 live mobile money platforms in Latin America, with five new launches in 2015. However, while mobile money efforts have been successful in Africa, uptake is minimal in Latin America, despite concerted efforts by every major telecom and bank to promote such services. Of 480 million adults in Latin America, there are a mere 15 million registered mobile money users (3% penetration), of which, only six million were active in the past 90 days.1

Leaving the Unbanked behind

Deficient agent networks, technological illiteracy, a lack of interoperability, and the plain old convenience of cash can all be cited as reasons for poor mobile money penetration. Very few mobile money services in LAC have reached profitability. As a result, some providers have migrated away from the unbanked. In a recent interview with Electronic Payments International, Miami-based technology provider YellowPepper noted, “Providing banking services to the unbanked wasn’t paying enough for us to survive, so for the time being we’ve left that market.” Banks and card networks are notably dedicating resources to launch services for their banked customers, including mCommerce mobile wallets and contactless merchant payments.

Switching from Feature to Smartphones

However, providers may be missing out on an intriguing opportunity. Almost all mobile money platforms worldwide are developed for feature phones because of the assumption that the unbanked cannot afford smartphones.

But this fails to take into account that smartphone penetration in Latin America was at roughly 40% in 2015 and that there were 156 million Latin American smartphone users. Moreover, the amount of Latin American smartphone users is projected to grow by 12% per year through 2019. LatAm’s smartphone spike is much faster than the rate of bank product adoption by the unbanked; for example, the World Bank reports that in Colombia, bank penetration grew only 2% annually from 2011-2015. And while 73% of Chileans and 70% of Mexicans will have smartphones in 2019, the number of unbanked in either market will not have noticeably budged. This means that the ranks of unbanked Latin Americans using a smartphone vs. a feature phone is growing—and quickly.
As such, mobile money operators, who are focused on low-tech interfaces for feature phones, may be developing the wrong types of products. Unbanked smartphone users are an entire demographic for which financial inclusion products have not been developed. Indeed, one self-admitted flaw of Peru’s recently launched mobile money service, BIM, is that it is clumsy and slow for smartphone users who are used to flipping seamlessly between apps. Considering the rapidly projected growth of Latin American smartphone penetration, mobile money services may become obsolete before they even become mainstream.

Consider Mindset As Well As Penetration

Of course, it’s not just about the rising tide of smartphone users. Mobile money service companies should also think about the mindset of these potential customers. Up to now, mobile money uptake has been so low in part because its main users are marginalized, poorly educated and highly suspicious of banks and technology.
However, the unbanked population in LatAm doesn’t just consist of technophobes. In fact, this market is diverse and has a number of young, lower-middle class urban dwellers who, in many cases, have smartphones. These users are more tech-savvy and adaptive than feature phone users, and thus are more likely to trade in old behaviors for new ones. With regard to mobile money, smartphone users would be more inclined to trust that their cash is stored safely in their phone and be more excited about sending money to friends electronically than their feature phone counterparts.

Moving up the Pyramid

Nowadays, the smartphone is the mechanism by which behaviors change and old patterns are disrupted; it has transformed how we communicate, shop, bank, and even hail taxis. Theoretically, if unbanked smartphone users—who are richer, better educated, and more included than feature phone users—adopt mobile money, they will want to use this technology to transact with their feature phone user friends, encouraging them to also use the service. Instead of working from bottom up with the most financially excluded, mobile money providers would be wise to let smartphone users push the service to the bottom of the pyramid for them.

Contact Americas Market Intelligence to learn more about mobile payments or other key data analytics about the payments industry in Latin America, including how to navigate the highly challenging e-commerce payments system in Brazil.

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