Almost half the adults in Latin America do not have a bank account, however a similar number have a mobile broadband connection, with smartphones are leading the charge towards a modern payments system.

The World Bank is working vigorously to boost bank account access across the region, with 28% of adults now making payments directly from their accounts using debit cards.

A large part of this drive is getting governments to pay their employees directly into a bank account, but there remains about 210 million adults in the region that are unbanked, compared to 2 billion globally.

And it is into this space that mobile money is proving transformative.

Smartphone an economy transformer

Of the 275 million broadband connections in Latin America, about 114 million were smartphone owners at the end of 2013, and by 2017 the number is expected to swell to 243 million, or 44% overall penetration, according to Latin Link.

And connecting is not an issue. The World Bank reports 98% of Latin America’s 600-million strong population have a mobile cell signal. And according to the Cisco Visual Networking Index, the existing 2G network will have been supplanted by 3G and reach 58% of total access by 2017.

Long-term evolution (LTE) communications are also on the rise, albeit from a low base of 5% penetration.
Mobile financial services, and in particular mobile money, have been recognised by the World Bank as a platform that can transform entire economies.

Mobile driven financial literacy

In a region where only 14% of the population have savings, and 11% documented borrowings, the ability to access financial services is more a matter of education than infrastructure.

A good example of how that can be achieved is in the East African country, Kenya. Its introduction of the mobile money service M-PESA, in 2007 was specifically targeted at domestic remittances, and promoted under the slogan “send money home”.

Of the 53% of Kenyans that sent remittances in 2013, 90% used a mobile phone for the transaction.

While there is no co-ordinated drive in a Latin American country to drive mobile financial services, there are specific initiatives that are driving change.

In mid-2013 PayPal teamed up with Chilean financial services provider Multicaja to provide 50,000 local merchants access to PayPal’s 123 million active accounts.

Move over Bitcoin, the Ecuadorians are coming

In Ecuador a novel approach by the government saw the introduction of a state-sponsored digital currency. Ecuadorians can now exchange physical cash for digital currency and store it in their mobile phone.

While it’s no different to the digital wallets available in other countries, it was the government’s way to encourage the 40% of Ecuadorians that do not have a bank account to engage with the financial system and economy.

And, assuming there is no future government meddling, there is no inflation issue as every digital dollar created must be backed by a physical dollar held by the central bank. However, the mandating of all public and private financial institutions to accept the digital currency has caused a bit of consternation.

All eyes on the Brazilian heavyweight

But it is Brazil where the real contest is taking place to drive Latin America’s digital revolution, with American Banker reporting 70% of all Latin American e-commerce occurs in Brazil.

Earlier this year Brazilian media reported Apple Pay was in talks with Bank of Brazil, Bradesco and Itau to launch the product at retailers, while Visa is pushing contactless technology ahead of the  2016 Olympic Games in Rio de Janeiro.

And late last year Google started accepting Brazilian Real for app purchases. That is important because 79% of Brazil choose pre-paid mobile plans, whereas Google Play and attached books and music content encourage carrier plans, which in turn promote greater and higher value use.

It also promotes the use of mobile as a payment method, something that is lacking culturally in Latin America.

The Brazilian central bank, Banco Central do Brazil (BCB), reported that in 2014 the share of mobile use in initiating banking transactions jumped from near zero to 10%, while the value of all debit and credit card transactions represented only 14% of all withdrawals made in financial institutions, indicating there is still ample room for electronic payments to absorb cash payments.

While mobile money transactions in Brazil was almost overwhelmingly used for moving cash over distance, as the system matures and expands, customers will increasingly want to move money over time – in the form of savings, insurance and credit.

Interoperability – I’ll have no part of that!

An issue to overcome is banking interoperability. There are more ATMs in Brazil than any other country, but each bank owned machine can only be operated by its customers.

On the other hand mobile data use is exploding, rising 87% between 2013 and 2014, and CISCO forecasts it to have a compound annual growth rate (CAGR) of 59% to 2017.

For companies wanting to get in on the Latin American growth curve, it’s likely some form of app would be involved in any penetration exercise, so it’s interesting to note the predominance of Android in the region.

According to Kantar in the third quarter of 2013 Android accounted for 70% of smartphone devices from a conglomeration of data from Brazil, Argentina and Mexico.
This article represents the views and opinions of the author and do not necessarily reflect the opinions of BPAY.
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