Mobile money: opportunities and challenges in Latin America
Luisa Muneratti, Senior Vice President – Europe & Latin America
Analysis of the commercial ecosystem in Latin America shows that while opportunities for digital and mobile payments have been historically low, the scope for their growth is considerable. Statistics published in Worldpay’s Global Payments Report suggest credit cards drive the majority of electronic payments in the region both at the point of sale (POS) and for online purchases (they account for 45% of all e-commerce spend overall, more in specific verticals like travel). Other than that, a mixture of debit cards, charge cards and digital or electronic wallets (eWallets) take the remainder of market share while electronic money transfers are common, particularly from the US.
Certainly, the Latin American payments market faces different challenges compared to other countries of the world – most notably the continuing heavy reliance on cash for POS and e-commerce transactions. Many consumers (up to 21% of e-commerce buyers) still follow up online check out processes with voucher payments at a bank branch or convenience store. Mexican retailer OXXO launched OXXO PAY in 2017, a solution that allows online buyers to buy via cash at their local store, for example. The high percentage of “unbanked” buyers – those with no credit history, or who don’t meet the requirements to open accounts or access loans – are also a barrier to growth. In Argentina only 49% of people have bank accounts, far below the global average of 68%. The figures are similarly low in both Columbia (46%) and Ecuador (51%).
The use of eWallets is small but growing across the LatAm region. Those include contactless mobile wallets like Apple Pay; e-commerce wallets such as Visa Checkout and Amazon Cash; and stored value wallets that allow customers to “top up” their smartphone mobile money accounts. Online payment provider PayPal too has seen some success thanks to its comparatively strong security and authentication protection combined with value-added services (free return shipping etc) that connect its wallet to a broader environment for online shopping/e-commerce. While eWallets made up 15% (US$9.2bn) of LatAm e-commerce payments in 2018, that is expected to grow to 18% (US$16.6bn) by 2022. POS payments funded by eWallets too are predicted to triple from 3% of the total in 2018 to 9% by 2022, according to Worldpay, primarily due to declines in the number of people using credit cards to fund their purchases.
There are considerable local variations in usage of (and attitudes to) digital payments, however. In Brazil, 13% of e-commerce spending was funded by a mobile wallet in 2017, and 3% of POS spend. But the figures are low in other countries like Columbia where the use of eWallets to fund online purchases is negligible, and only 1% underpin POS transactions. On the bright side Columbia has a predicted e-commerce CAGR of 23% between 2018 and 2022 however, giving digital payment providers plenty of opportunities to stake their claim. Argentina, which has seen 16% annual growth in e-commerce activity, is starting to see the gap between credit cards and eWallets gradually closing. While only 4% of POS spending relied on a mobile wallet in 2017 calculated Worldpay, the figure for e-commerce spending using the same mechanism was 22%. Mexico too saw eWallets account for 14% of all eCommerce payments in 2017, largely driven by “millennial” citizens born in the 1980s and 1990s.
Secure mobile payment options are starting to appear in the region alongside apps that allow citizens to pay their utility bills and use QR codes to enable purchases. Virtual credit cards and 100% online banks, alongside partnerships between financial institutions and large online marketplaces, are also starting to make inroads into national economies. The US$180m investment in Brazilian online bank NuBank by Chinese retail giant Tencent is a good example, roughly coinciding with the introduction of QR code payment mechanisms similar to those already popular in China.
Most banks in Latin America are working to develop contactless mobile wallets for physical purchases. But the low penetration of NFC-enabled smartphones and POS terminals outside of Brazil, coupled with the reliance on cash, is an obstacle to their adoption. So too is the fact that those most excited about contactless payments via their smartphones – the millennials – are also those least like to own the credit cards needed to back up their payments.
Use of direct carrier billing (DCB) in the region has been small scale to date, driven mainly by smartphone gaming downloads. But there too there is ample opportunity for growth: in its Global Carrier-Billing Forecast Report: 2018–23 report, research company Ovum estimated that the value of goods and services purchased via direct carrier billing in Latin America would grow from around US$1.4bn in 2018 to roughly US$3.2bn by 2023.
Last month [October 2019] Telefónica announced a partnership with DOCOMO Digital that will enable LatAm MNO subsidiaries such as Vivo and Movistar to accelerate the adoption of DCB for the purchase of digital and content services across the region. Starting with Movistar Chile, millions of customers will be able to buy goods from merchants and app stores securely using their mobile phones, with new regulation paving the way for further payment opportunities in public transportation and e-ticketing.
Other trends look set to support the rapid expansion of mobile payment activity in the region. According to a report published by GSMA Intelligence, around three-quarters of Latin America’s population will subscribe to mobile services by 2025, as penetration on countries such as Honduras, Guatemala and Nicaragua grow to match already high rates in Brazil, Mexico, Argentina and Columbia. Smartphone adoption too is forecast to grow from 62% in 2017 to 78% by 2025, with trials of faster fifth-generation (5G) mobile data networks which will support a higher volume of digital content and service availability already being orchestrated in various countries by América Móvil, Telefónica, Millicom, Entel and Telecom Argentina.
Collaboration among governments, banks, merchants, telcos, fintech providers and start-ups is widely considered essential to expanding the mobile payments ecosystem. Brazil has already shown how government initiatives can bring change by making it more affordable for merchants to accept digital payments and more accessible for customers to use them. A series of new regulations introduced since 2010 has helped to break the dominance of the ePayment market by a few large credit card companies and promote more competition from companies able to offer alternative methods of making payments and purchases.
Other regulatory and central bank initiatives include Cobro Digital or CoDi (Digital Purchase) in Mexico, a digital platform based on smartphone QR codes and NFC recently launched jointly by the Mexican Central Bank, the Mexican Bankers Association (ABM) and the Mexican Association of Popular Financial Societies (AMSOFIPO). As the world’s largest Spanish speaking market, expectations for digital mobile payments growth beyond cash and credit cards are especially high for Mexico amidst speculation that the country’s new prime minister will implement federal social impact measures that will rely on technology-based solutions to reach the unbanked section of its population.
While Mexico and Brazil look set to lead on innovation in digital and mobile payments, there is little doubt their combined development efforts will pave the way for other countries in Latin America to accelerate their adoption of similar mechanisms and services over time.