Institutional and regulatory environment for Mobile Financial Services: What makes Latin America different?

Institutional and regulatory environment for MFS What makes Latin America different? Rio de Janeiro, May 25th 2010 Álvaro Martín Enríquez (amartin@afi.es) http://movilybanca.afi.es

Why we looked at Latin America in 2007 • Could early experiences be replicated in another region? Source: www.outline-world-map.com (2009) 2

Access to formal financial services was relatively low… Source : Honohan (2007) 3

Traditional financial distribution was insufficient… Branches and ATMs per 100.000 inhabitants (2006) Bolivia Peru Mexico Colombia ATMs Ecuador Branches Chile Argentina Brazil USA Spain 0 20 40 60 80 100 120 140 Source: Beck, Kunt & Martínez-Pería (2006) Banking Services for Everyone? Barriers to Bank Access and Use Around the World 4

Large remittance flows were not being captured by banks… • US$ 66.5 billion remittance inflows in 2007 El Salvador 100% Nicaragua Honduras Remittances received through 80% financial institutions 60% Guatemala 40% Ecuador Recipients with bank accounts 20% 0% Jamaica Mexico R. Dominicana Peru Colombia Bolivia Recepción Rem esas por Entidad Financiera Receptor con cuenta de ahorro Source : IADB (2009) 5

There was room for improvement… Access to formal financial services vs. GDP per Cellular subscribers per 100 inhabitants vs. capita in emerging countries GDP per capita in emerging countries 90% 140 80% 120 70% 100 60% 50% 80 40% 60 30% 40 20% 20 10% 0% 0 0 5000 10000 15000 20000 25000 30000 0 5000 10000 15000 20000 25000 30000 Africa Europe Latin America Asia Africa Europe Latin America Asia Source: Afi from Honohan (2007), IMF (2007) & ITU (2008) 6

80% of Latin Americans were covered by cellular networks… Cellular Population coverage density (2007) (2000) Source: GSMA (2007) and Latin America and the Caribbean (LAC) Population Database (2000) . Population density in people/km2 7

Mobile penetration was growing fast… Cellular subscribers per 100 inhabitants 140 120 Cellular subscribers per 100 inhabitants 100 80 60 40 20 0 2002 2003 2004 2005 2006 2007 2008 Latin America América Latina EmergentesAsia Emerging Asia EmergentesEurope Emerging Europa Africa África Source: ITU (2009) 8

Some of the largest MNOs were operating in the region Market share (subscribers) in Latin American countries (2007) 100% 80% Cuota de mercado 60% 40% 20% 0% ARG BOL BRA CHI COL R.DOM ECU MEX PAR PER URU VEN Telefónica América Móvil Telecom Italia Otros Source: Pyramid Research (2007) 9

Despite this, Latin America still lagged behind until recently 2001 → 2002 → 2003 → 2004 → 2005 → 2006 → 2007 → 2008 → 2009 → 2010 Source: www.outline-world-map.com (2009) and GSMA Mobile Money Deployment Tracker (2010) 10

What were we missing? • Success is difficult to achieve due to a complex environment: – Competition (banks, money senders, payments) – Strategic priorities for telcos (opportunity cost, externalities) – Regulatory and institutional environment 90% 80% 77,4% 77,4% 70% 62,3% 60% 50% 43,4% 40% 30% 18,9% 20% 15,1% 15,1% 10% 5,7% 1,9% 1,9% 0% Airtime Domestic Bill Payments Merchant Links with International MFI Loan Salary G2P Insurance Purchase Money Payments Bank Money repayment or Payments Transfers Accounts Transfer disbursement Source : www.outline-world-map.com (2009) and GSMA Mobile Money Deployment Tracker (2010) 11

Shared roles between mobile operators and financial institutions Transactions, application & Transactions & Account-linked Pooled deposit deposit deposit deposits BANK BANK BANK 3rd BANK parties MNO MNO MNO MNO Application & Financial Carrier Joint Venture Carrier Institution Source: Afi 12

Certainty and openness in Latin American environments Source: Afi & Bankable Frontier Associates (2009): How Enabling is the Latin American Environment for Mobile Money? 13

Classifying mobile financial services Services over banking Services over non- stores of value banking stores of value (mobile banking) (mobile wallets) Transformational models MTN Banking (South Africa) Oi Paggo (Brazil)* M-Pesa (Kenya) Wizzit (South Africa) Tigo Cash (Paraguay) Gcash (Philippines) Mobile Money (Jamaica) Smart Money (Philippines) Mobi Cash (Morocco) Orange Money (Ivory Coast) Zap (Kenya, Tanzania, Uganda) Additive models Link Celular (Argentina) Nipper (Mexico) Crandy (USA, France) Pichincha Celular (Ecuador) Mobipay (Spain) Obopay (USA) Banco do Brasil (Brazil) mChek (India) PayPal Mobile (USA) … Pago Móvil (Peru) * Oi Paggo is a credit-based mobile payment system that requires no bank account, but it is not strictly a mobile wallet 14

Regulatory framework TELECOMS REGULATION PAYMENTS SYSTEM REGULATION - VAS (Central Banks) - Interoperability - Access to payments systems - Number portability - e-Money E-COMMERCE RULES BANKING REGULATION - Electronic signature MFS (Banking Superintendencies) - Prudence TAXATION - Banking agents / correspondents - VAT - AML/CFT - FTT - Consumer protection COMPETITION - Artificial entry barriers 15

Institutional framework Banking Payments Ministry of supervisor supervisor NRA Telecoms (Superintendency) (Central Bank) Consumer protection body Non-banking Banks financial institutions Ministry of Finance (Tax Telcos Agency) Payments Money senders processors E-certification body 16

Regulatory improvements are coming • Banking agents (Bolivia, Brazil, Colombia, Ecuador, Mexico, Philippines, India, Kenya, South Africa…) • Basic accounts (Argentina, Brazil, Mexico, India, South Africa …) • E-Money: • Regulated issuers models (EU, Philippines) • Trust models (Kenya) • Granting MFIs access to payments systems (Ecuador) • Consumer protection and financial literacy programs (Mexico – CONDUSEF) • Tax barriers removed (Philippines, FTT removed after study in 2006) • … 17

Institutional and regulatory environment for MFS What makes Latin America different? Rio de Janeiro, May 25th 2010 Álvaro Martín Enríquez (amartin@afi.es) http://movilybanca.afi.es

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Institutional and regulatory environment for Mobile Financial Services: What makes Latin America different?

by Álvaro Martín Enríquez on May 27, 2010

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