First experiencing success in Africa, mobile money has now reached the markets of Latin America, where about 70% of the population does not have a bank account. Roughly 90% of mobile subscribers in the region are on a prepaid plan, illustrating just how financially excluded most Latin Americans remain. Mobile Network Operators (MNOs) see this as an irresistible opportunity to expand their ARPU (average revenue per user) in a traditionally low margin business.
As a world leader in mobile money, Tigo was one of the pioneers of the service in the region, followed by America Móvil, with mobile money platforms in both Mexico and Colombia, Claro in Brazil and Peru, and Digicel and Voila in Haiti. Third-party payment network operators are also fighting for a piece of the pie, including Mi Plata in Colombia, and Yellow Pepper, based in Miami. So much is the excitement surrounding mobile money in Latin America that the GSMA, a global association of mobile operators, reports that there are currently 29 live mobile money services in Latin America and 19 launches are planned for the region in 2015.
Lots of Fish in a Small Pond
However, a hard look at the numbers reveals that these competitors are chasing a tiny market. Worldwide, more than 200 million users have signed up for mobile money, but only 60 million of these were active in 2013. In Latin America, a region with more than 500 million people, only 8.4 million people are enrolled in mobile money, and of these, only 2.4 million accounts were active in the last 30 days. Most of the stored value on their phones is used to top up their prepaid mobile account. Getting users to use their mobile money accounts at the point of sale has proven to be a formidable challenge for service providers, one that requires a change in behavior among consumers. This is especially difficult amongst the poor, some of whom are illiterate, slow technology adopters, and accustomed to a cash economy. Low customer awareness, limited small merchant acceptance and the lack of a legal framework to govern mobile money are key challenges that telecommunications companies and banks must overcome to bring these services to scale. Some experts believe that only MNOs like Claro, Telefonica, and Tigo have sufficient size to both educate consumers and lower transaction costs sufficiently to take on mobile money’s greatest competitor—cash.
Registered Mobile Money Accounts per 10,000 Adults, Globally and by Region
Increased Government Support May Help Mobile Money in LatAm
Latin American governments who struggle against the undertaxed informal economy and support financial inclusion, are keen to see mobile money operators succeed. So far, mobile money legislation, which explicitly allows non-bank entities to issue e-money, has been passed or is in consultation in Bolivia, Peru, Brazil, Mexico, Colombia, Paraguay and El Salvador. Additionally, Peru has joined the Better than Cash Alliance, a non-profit that lobbies for electronic payments. As governments continue to get behind mobile money, MNOs, banks, and others must deepen their cooperation to create a cross-border, homogenous mobile money network that will incentivize both consumers and merchants to transition to this payment system in larger numbers.
Unless mobile money soon takes off and reaches a much larger scale, even the most enthusiastic mobile players will lose faith. For a decade, banks tried unsuccessfully to convert bottom of the pyramid consumers into profitable customers. The jury is still out as to whether MNOs can achieve what banks could not.
Contact Americas Market Intelligence to gain even more insights into the payments market in Latin America—including affluent business or consumer cards, mobile money, digital wallets, e-commerce, POS systems and more.