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Analyst Angle: The status of m-payments in Latin America

Editor’s Note: Welcome to our weekly feature, Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their outlook on the hot topics in the wireless industry.

Latin America combines a number of favorable conditions on the demand side for the emergence of m-payment services. There is low penetration of financial services in the region, and the end mobile penetration rate is high. Informa estimates that the end mobile penetration rate has reached 113% in the first quarter of 2013. The region also has an important rural population. According to the World Bank, 61% of Latin Americans do not have a banking account in a formal institution as of 2011. Even considering that in some countries, part of this population is served by informal institutions, like cooperatives, there is still a clear business opportunity in serving the unbanked population.

However, despite having the potential for m-payment services, Latin America has lagged behind other regions with few deployments over the years. Success cases, like the world-famous M-Pesa from Safaricom in Kenya, are still very far from reality in Latin America. This is not to say that there has been no activity. A number of trials have been announced, and some eventually launched, but they have seen limited growth.

Not surprisingly, the most successful cases are found not in the biggest markets in the region but in countries like Bolivia, El Salvador and Paraguay, thanks to the efforts of Tigo (from Luxembourg-based Millicom). Tigo announced that its m-payment service, Tigo Money, reached a 25% penetration rate among its Paraguayan customer base in the first quarter of 2013. There are two main reasons why there is an early lead in these countries: first, they have financial service penetration rates below the Latin American average, and second, these countries have the presence of an operator that also has business in Africa, a continent that is home to some of the earliest success cases. So for example, Tigo could use the expertise it built in Africa to develop its offerings in Latin America.

Nonetheless, in the past two years, the two biggest regional players, América Móvil and Telefónica, have been more active. América Móvil has struck deals with local banks in some of its most important markets, while Telefónica has formed a joint-venture with Mastercard to explore m-payments in Latin America. América Móvil and Telefónica have the scale and the reach to speed up the availability of m-payment services in Latin America. The question is whether this renewed effort will be more successful than past efforts.

Despite a slow start, there are indications that Latin America will see an increase in m-payment initiatives. Informa tracks all the public announcements made in this market, and since the fourth quarter of 2012, the number of projects, either commercial deployments or trials, have increased.

All in all, it seems that the supply side of the equation is slowly sorting itself out, helped by more mature technology, a clearer business case and reduction of regulatory uncertainty. (Brazil, for instance, is finalizing the regulatory framework for m-payments.) On the demand side, there has always been a market to target: not only the economically active population that has been excluded from the financial system but also the financially included population that wants to have a more sophisticated experience.

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