Presentation by Afi at the Inter American Development Bank headquarters in Washington DC

1. M-Banking: Opportunities and barriers for the development of
Mobile Financial Services in Latin America and the Caribbean
Washington DC, November 20th 2008
http://movilybanca.afi.es

2. Opportunities and barriers for the development of Mobile Financial Services in Latin America and the Caribbean
• Methodology:
– Analysis of international best practices
– Study of the environment for MFS in LAC and, particularly, in Bolivia, Brazil,
Dominican Republic, Ecuador, Mexico and Peru
– Recommendations for MIF intervention
• Cooperation with Fundación Telefónica:
– Workshops in Ecuador, Colombia, Peru, Argentina, Brazil, Venezuela and Chile
– Dissemination: Forthcoming publication + blog
• Peer review by David Porteous (Bankable Frontier Associates)
2

3. •
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Sp
ai
U n
ni
te
d
St
at
Source: Honohan (2007)
es
C
Regional background
hi
le
Pa
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D gu
om ay
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R
ep
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Low access to formal financial services in LAC
ge
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la
El
Sa
lva
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ru
H
on
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ex
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ica
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3

4. •
-
5.000
10.000
15.000
20.000
25.000
M
Source: IADB (2008)
ex
ic
Bo
C ra
ol z
Regional background
G o m il
ua bi
ta
D E l S em
om a a l
in l va a
ic
a n dor
R
E c ep
ua .
do
H Pe r
on ru
d
Large remittance flows
Ja u ra
ms
ai
ca
H
a
B iti
N oliv
ica ia
r
A r agu
ge a
nt
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a
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Pa h
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os u a
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Ve a
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id
ad U ru a
& gu
T o ay
b
S u ag
rin o
a
Be m
liz
e
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
% GDP
Millions of USD
4

5. Regional background
• Surge in consumer credit
140
Average annual growth 2001 - 2005: +20% Venezuela
Argentina
120
Colombia
Peru
Chile
100
Miles de m illones de USD
Mexico
80
60
40
Brazil
20
0
2001 2002 2003 2004 2005
Source: McKinsey (2007)
5

6. Regional background
• Mobile is the fastest-growing ICT in LAC
80
70
Subscribers per 100 inhabitants
60
50
40
30
20
10
0
2001 2002 2003 2004 2005 2006 2007
Mobile s ubs cribers Fixed lines Broadband s ubs cribers Internet us ers
Source: ITU (2008)
6

7. Regional background
Argentina Brazil Colombia Mexico Peru
Penetration Low-income cell phone users (2007) 70% 53% 89% 37% 60%
Low-income owners (2007) 61% 42% 63% 30% 37%
102% 63% 74% 64% 55%
Total penetration (2007)
74% 96% 90% 92% 96%
Low income (2007)
Prepay
73% 80% 83% 89% 87%
Total (2007)
Cost of the Negative perception (expensive) 18% 54% 21% 38% 35%
service
68% 34% 51% 45% 55%
Neutral perception
14% 12% 28% 16% 10%
Positive perception (cheao)
Average expense Low-income - US$ (2007) 11,0 12,0 6,0 16,0 7,0
14,5 15,3 8,1 17,9 10,3
ARPU telecom operators – US$ (2007)
Voice ARPU telecom operators – US$ (2007) 11,8 14,1 7,1 15,1 8,9
Elasticity in low- Would stop using cell phone if its cost doubled 9% 8% 16% 23% 9%
income users
Wouldn’t change use pattern if cost doubled 34% 24% 20% 29% 21%
Would increase use if cost halved 83% 84% 78% 83% 82%
37% 42% 47% 30% 68%
Would increase use if income doubled
91% 36% 44% 53% 45%
SMS use
SMS in low-
income users
Doens’t use because doesn’t know how (over non-users) 37% 38% 34% 39% 53%
7
Source: DIRSI (2007), ITU (2008) and Pyramid Research (2007)

8. Classifying Mobile Financial Services
Services over banking Services over non-
stores of value banking stores of value
(mobile banking) (mobile wallets)
Transformational models
Oi Paggo (Brazil)* M-Pesa (Kenya)
MTN Banking (South Africa)
Tigo Cash (Paraguay) Gcash (Philippines)
Wizzit (South Africa)
Mobile Money (Jamaica) Smart Money (Philippines)
Orange Money (Ivory Coast)
Additive models
Crandy (USA, France)
Nipper (Mexico)
Link Celular (Argentina)
Obopay (USA)
Mobipay (Spain)
Pichincha Celular (Ecuador)
PayPal Mobile (USA)
Banco do Brasil (Brazil)
…
8
* Oi Paggo is a credit-based mobile payment system that requires no bank account, but it is not strictly a mobile wallet

9. Transformational Mobile Financial Services
• Main regulatory concerns:
– Financial stability & Competition
– Agent networks
– AML/CFT
Top-down
– E-money
BoP
• Main technical concerns: Bottom-up
– Mobile bearer technology
– Banking core technology
– Access to payments systems
9

10. Environment for Mobile Financial Services
BUSINESS CASE
PRE-REQUISITES • Promoters & model
• Mobile network • Price scheme
• Tested technology • Distribution & Cash management
• No regulatory • Consumer insight
impediments
ENABLERS DRIVERS
• Agents
• AML / CFT
AVAILABLE SERVICES
• E-money
• Top-up
• High mobile
penetration • Bill payments
• Banking • Money transfers & remittances
technology
• Salaries / subsidies
• Literacy
• Purchases
10

11. Key national findings
COUNTRY BOLIVIA
Financial System Access to formal 30% evatel; 24,3%
financial services
Banking agents Regulation and operation
Entel Móvil;
E-money No regulation 47,8%
Remittances 8%
(over GDP)
Mobile telephony Penetration 34,2%
Telecel; 27,9%
Prepay 85%
Sophistication 7,39%
10
Millones
MFS M-banking Yes 9
8
M-wallet n.a.
7
•Limited banking technology available at most MFIs
Additional 6
•América Móvil and Telefónica not present
information 5
4
3
2
1
0
2003A 2004A 2005A 2006A 2007E 2008E 2009E 2010E 2011E 2012E
Población e s tim ada a Julio de 2008
Núm e ro de abonados ce lulare s
11

12. Key national findings
Otros; 0,3%
COUNTRY BRAZIL
Oi; 18,9%
Financial System Access to formal 43%
financial services Vivo; 30,5%
Banking agents Regulation and operation
E-money No regulation, prepaid cards
Remittances 1%
(over GDP)
TIM ; 25,6%
Mobile telephony Penetration 63,1%
Prepay 80% Claro; 24,8%
Sophistication 7,75%
200
Millones
MFS M-banking Yes 180
160
M-wallet Yes (Oi Paggo*)
140
•Brazil was pioneer in regulating banking correspondents and
Additional 120
information has achieved a full coverage of municipalities in the country 100
with this scheme. 80
•ANATEL, the telecommunications regulatory body in Brazil, 60
must authorize certain value-added services over telecom 40
networks, as it might be the case with MFS. 20
0
2003A 2004A 2005A 2006A 2007E 2008E 2009E 2010E 2011E 2012E
Población e s tim ada a Julio de 2008
Núm e ro de abonados ce lulare s
12
* Oi Paggo is a credit-based mobile payment system that requires no bank account, but it is not strictly a mobile wallet

13. Key national findings
COUNTRY ECUADOR
A leg ro ; 4 ,8 %
Financial System Access to formal 35%
financial services
M o vist ar; 2 7,0 %
Banking agents Regulation and operation
E-money No regulation, prepaid cards
Remittances 7%
(over GDP)
Mobile telephony Penetration 75,6% Po rt a Celular (A mérica
M o vil); 6 8 ,2 %
Prepay 88%
Sophistication 15,77%
14
Millones
MFS M-banking Yes
12
M-wallet n.a.
10
•Most Ecuadorian migrants live in Spain, where nearly 77% of
Additional
8
information them have a bank account.
•In Ecuador, HalCash operates through Banco de Guayaquil. 6
This system allows the reception in a mobile phone of a code
that allows the recipient to withdraw his/her remittance at an 4
ATM, as long as it has been sent from a Spanish bank 2
account. The recipient does not need such account.
0
2003A 2004A 2005A 2006A 2007E 2008E 2009E 2010E 2011E 2012E
Población e s tim ada a Julio de 2008
Núm e ro de abonados ce lulare s
13

14. Key national findings
COUNTRY MEXICO Next el; 3 ,2 %
Iusacell; 6 ,1%
Financial System Access to formal 25%
financial services
M o vist ar ; 17,8 %
Banking agents Regulation and operation
E-money No regulation, prepaid cards
Remittances 3%
(over GDP)
Mobile telephony Penetration 64,1% Telcel; 72 ,9 %
Prepay 88%
Sophistication 15,66% 120
Millones
MFS M-banking Yes (inc. Celopago, Nipper) 100
M-wallet n.a. 80
•Mexico alone received in 2007 remittances for 24.000M$,
Additional
60
information nearly 50% of all remittance flows in LAC.
•Western Union offers the use of a mobile application in
40
Trumpet Mobile terminals as an alternative channel for money
transfer services.
20
0
2003A 2004A 2005A 2006A 2007E 2008E 2009E 2010E 2011E 2012E
Población e s tim ada a Julio de 2008
Núm e ro de abonados ce lulare s
14

15. Key national findings
COUNTRY PERU Next el; 3 ,4 %
Financial System Access to formal 25%
financial services
Banking agents Regulation and operation
Claro ; 3 8 ,8 %
E-money No regulation, prepaid cards
Remittances 3%
(over GDP)
Mobile telephony Penetration 55,3%
Prepay 88%
M o vist ar; 57,8%
Sophistication 13,86%
35
MFS M-banking Yes
Millones
30
M-wallet n.a.
25
•Banking supervisors (Superintendencia de Banca y Seguros)
Additional 20
information and the Central Bank have agreed not to consider mobile
15
wallets as deposit taking, but as a mere payments service.
10
5
0
2003A 2004A 2005A 2006A 2007E 2008E 2009E 2010E 2011E 2012E
Población e s tim ada a Julio de 2008
Núm e ro de abonados ce lulare s
15

16. Key national findings
COUNTRY DOMINICAN REPUBLIC
Financial System Access to formal 29%
financial services
Or ange Dominicana;
36,3%
Banking agents No regulation
Clar o ( Ant es Ver iz on,
Codet el) ; 47,2%
E-money No regulation, prepaid cards
Remittances 9%
(over GDP)
Mobile telephony Penetration 56,5%
Prepay 85% Cent ennial
Dominicana; 6,2%
Tr icom; 10,3%
Sophistication 5,86%
10
Millones
MFS M-banking n.a. 9
8
M-wallet n.a.
7
•Dominican Republic was the only analyzed country in which
Additional 6
information no regulation for banking agents was found, nor any additive 5
m-banking models.
4
3
2
1
0
2003A 2004A 2005A 2006A 2007E 2008E 2009E 2010E 2011E 2012E
Población e s tim ada a Julio de 2008
Núm e ro de abonados ce lulare s
16

17. International experiences
Country Year Promoter Adoption Distribution
Account opening in MTN and Standard Bank
MTN MTN (Operator) and 15K clients by April branches. If identity is not confirmed, limited
2005
Standard Bank 2005 functionality. Cash-in in stores and EasyPay
Money
South network.
Africa
Account opening with agents (Wizz Kids) and 400
50K clients in less
Wizzit 2005 Bank of Athens Dunn stores; cash-in at PostBank, Absa or Bank
than 2 years
of Athens; cash-out available at stores.
2M registered (April
Vodafone - Safaricom Account opening, cash-in and cash-out in 850+
M-Pesa Kenya 2007 2008) over aprox. 4M
(Operator) agents and Safaricom stores
bank accounts
Account opening, cash-in and cash-out in 4900+
Globe Telecom - GXI 500K active users in
GCash 2004 official agents (only account opening requires
(Operator) urban zones
physical presence - KYC)
Philippines
Smart Communications Account opening requires physical presence in
Smart 4M subscribers (900K
(Operator) and 5 banks any of hundreds of Smart shops; cash-in available
2003
active) by 2006
(including Banco de at 12000+ associated stores, ATMs (with card) or
Money
Oro) bank branches
17

18. Lessons learned
70%
• Transformational approach
Population with access to formal financial
CHI
60%
50% SOU
• Partnership COL BRA
40%
services
ECU
PAR BOL ARG
30% DOM VEN
PHI PER MEX
• Technology: STK 20%
10% KEN
• Killer application: Top-up 0%
0 2000 4000 6000 8000 10000 12000 14000 16000
GDP pe r capita (PPP)
• Distribution (cash-in/cash-out) 120%
2004
Mobile subscribers per 100 inhabitants
100%
2007
• Regulation 80%
60%
40%
• Scale
20%
0%
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18

19. Conclusions: criteria
• Low levels of access to financial services
• Enablers:
– Regulation on banking agents, e-money and/or prepaid cards
– High mobile penetration and growth
• Drivers:
– Importance of remittance flows
– Sophistication of cellular market
• Other (previous MFS in the country, telecoms regulation, competition…)
19

20. Conclusions: summary of key national findings
Access to financial services Financial Regulation Remittances Mobile Market MFS experiences
Population
with access Branches/ ATMs/ E‐money / Data ARPU / Lines per
Agents %GDP MFS
to financial 100K inh. 100K inh. prepaid cards Total ARPU 100 inh.
services
√
30% 0,13 4,80 X / X 8% 7,39% 34,2
Bolivia
√
43% 3,05 17,82 X / √ 1% 7,75% 63,1 Oi Paggo
Brazil
√
35% 4,38 6,32 X / √ 7% 15,77% 75,6 Hal Cash
Ecuador
Celopago,
Mobipay,
√
25% 4,09 16,63 X / √ 3% 15,66% 64,1
Mexico
Nipper,
Western Union
√
26% 0,89 5,85 X / √ 3% 13,86% 55,3
Peru
Dominican
29% 10,83 15,08 X X / √ 9% 5,86% 56,5
Republic
20

21. Conclusions: most suitable environments for MFS
• Regulation on banking agents, existing
• Ecuador
prepaid cards
• High mobile penetration and growth
• Mexico
• High sophistication of mobile market
• Peru • Important remittance flows
• Brazil: role of ANATEL, existing e-payments (cards) infrastructure, taxation
• Bolivia: low mobile penetration (competition?), challenging banking
infrastructure (particularly in MFIs)
• Dominican Republic: No agents, lowest mobile sophistication, no MFS
21

22. Recommendations
Addressee Goal Recommendation Risks and issues
Donors To choose the country To assess the environment in each Promoting initiatives based
with the greater potential of the countries, prioritizing those on excessively favorable
to develop initiatives with in which, given the relevant pre- environments, making them
regional impact. requisites, MFS enablers and unsuitable for export to other
drivers are also found. countries.
To create a positive To collaborate with regulators and Creating national regulations
environment for the authorities in order to define an with diverging national
development of MFS. open legal framework which interpretations
provides certainty and
harmonization at a regional level.
To support successful To apply lessons learned in Failing to adapt international
models successful models to the reality in experiences to LAC
LAC. institutional and cultural
traces.
22

23. Recommendations
Addressee Goal Recommendation Risks and issues
National To provide an open and To define relevant regulation for Rising regulatory demands
authorities and well-defined regulatory MFS and, particularly, in the fields excessively could have a
regulators environment. of banking correspondents, e- negative impact on some
money and AML/CFT compliance MFS models.
for low-value accounts.
To favor the affordability To reduce taxation over financial An increase in competition
of MFS. transactions and could affect profitability or
telecommunications services. solvency of some
intermediaries.
To favor dialogue among To coordinate policy and actions by Not finding a balance
stakeholders. Central Banks, Financial between the interests and
Supervisors and telecoms mandates of each institution.
regulators.
23

24. Recommendations
Addressee Goal Recommendation Risks and issues
Financial To offer more secure and To reach agreements with telecoms Conceding total control of the
Institutions complete MFS. operators in order to benefit from operations to MNOs, instead
their greater reach and access to of benefiting from the
the SIM. strengths of both.
To achieve a better To research the market to find out Misinterpreting the needs of
knowledge of customers the habits and necessities of the potential customers.
BoP.
To offer greater To design channels, products and Aiming at complete but
convenience to services specifically designed for excessively complex
customers the BoP (transformational). solutions.
24

25. M-Banking: Opportunities and barriers for the development of
Mobile Financial Services in Latin America and the Caribbean
Washington DC, November 20th 2008
http://movilybanca.afi.es