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The 2017 Landscape of Virtual Money in Latin America

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This Latin American market research presentation was made by Lindsay Lehr—Senior Director of the Payments Practice at Americas Market intelligence—at LatAm Mobile Summit 2016. It covers the development of digital wallets for m-commerce in Latin America (such as Visa Checkout), a regional overview of mobile money in Latin America with the 3 key groups (leaders, markets with significant mobile money potential and markets with limited mobile money potential), the importance of interoperability a mobile money case study for LatAm (BIM in Peru) and best practices for mobile money success in Latin America, as well as opportunities in mobile money for different companies.

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The 2017 Landscape of Virtual Money in Latin America

  1. 1. Landscape of Virtual Money in Latin America Trends, Opportunities, Risks January 2016
  2. 2. 2 Legal notice Wherever possible, AMI has verified the accuracy of information provided by third parties, but does not under any circumstances accept responsibility for such inaccuracies should they remain unverified. It is expected that the Client will use the information provided in this report in conjunction with other information and with sound management practices. AMI therefore will not assume responsibility for commercial loss due to business decisions made based on the use or non-use of the information provided.
  3. 3. 3 Telling the story: Trends in virtual money
  4. 4. 4 The case for financial inclusion and mobile money Globally, the mobile phone is considered a tool for financial inclusion, but the pool of LatAmunbanked mobile phone users may be smaller than once imagined Market Banked population (mn) Credit or debit card holders (mn) Mobile phone users (mn) Unbanked mobile phone users (mn) Uncarded mobile phone users (mn) Brazil 108 94 147 39 53 Mexico 35 24 83 48 59 Colombia 14 11 34 20 23 Peru 6 5 21 15 16 Chile 9 8 13 4 5 Argentina 16 14 30 14 16 Latin America 220 173 396 176 223 Sources: The World Bank, eMarketer, MasterCard, GSMA Financial inclusion data, 2014 According to the GSMA, mobile money uses a cell phone to make transfers and payments, is geared toward the underbanked and must meet the following criteria: 1. Offer at least one of the following services: § Domestic or international remittances § Mobile payments, including utility bill payments 2. Be based on a network of transactional points outside bank branches § Social benefits payouts § Payments at merchants
  5. 5. 5 Enthusiasm for mobile money has surged in recent years Spearheaded by the telcos, investment in mobile money for financial inclusion has remained strong § There are currently 37 live mobile money services in Latin America and the Caribbean. § Latin America experienced 50% growth in the number of mobile money users in 2014, the highest growth rate of any world region. § Six countries have mobile money regulatory frameworks and several others are pursuing financial inclusion legislation LatAm mobile money launches, 2010-2015 2010 Tcho Tcho – Haiti mPeso – Nicaragua Tigo Money – Honduras Cuenta Móvil – Chile 2012 Mi Billertera Móvil – Argentina Billetera Móvil – Peru Transfer – Mexico PadeMobile – Mexico Transfer Aval – Colombia Orange mPeso – Dominican Republic Movil Cash – Panama Tu Dinero Móvil – Peru Plata Móvil - Colombia 2011 Daviplata – Colombia Movilway eWallet – Venezuela Bancamigo – Guatemala Tigo Money - Guatemala 2013 Ahorro a la Mano – Colombia Meu Dinheiro – Brazil Zuum – Brazil Envíos Personal – Paraguay Lajancash – Haiti 2014 2015 Olha Conta – Brazil TIM Multibank Caixa – Brazil Dinero Electrónico – Ecuador BIM – Peru VIVA Solutions – Bolivia Sources: GSMA, GSMA Mobile Money Deployment Tracker
  6. 6. 6 Despite concerted efforts, MM has not yet reached scale Considerable challenges remain for MM to bring value to both users and operators § Despite heavy investment by the region’s biggest players, mobile money has still not reached scale after 8+ years in operation. § Operators face significant challenges in keeping user accounts active once opened. § Most MM services have <5% penetration of total mobile subscriptions. § MM is most successful in small countries such as Haiti, Central America and Paraguay. § MM has gained almost zero traction in large economies Brazil and Mexico 50% 23% 14% 11% 2% Airtime top-up P2P transfer Bulk disbursement Bill payment Merchant payment Transaction diversification remains low, with 73% of transaction volume concentrated in airtime top-ups and P2P payments. Mobile money penetration, year end 2014 Scaled services, year end 2014 Mobile money transaction breakdown, % of total volume transacted, year end 2014 LatAm adult population Total MM penetration 460 mn 15 mn Registered MM users Active MM users* 6 mn 3.3% Only 3 out of 37 services have achieved 1 million+ users Sources: GSMA, Center for Financial Inclusion, AMI interviews and analysis*Active in the past 90 days
  7. 7. 7 Smartphone users are a larger and more viable opportunity Among LatAm’s six largest markets, smartphone users represent 77% more income than feature phone users and 33% fewer people. Market Income controlled by top 40% (smartphone users), 2015, bn USD Income controlled by bottom 60% (feature phone users), 2015, bn USD Brazil $1,188 $612 Mexico $720 $442 Colombia $178 $96 Peru $101 $79 Chile $157 $83 Argentina $329 $250 Total $2,673 $1,562 30% 40% 50% 60% 70% 2015 2016 2017 2018 2019 Chile Colombia Mexico Argentina Latin America Brazil Peru Smartphone penetration, 2015-2019 CAGR: 12% Smart phone penetration, 2015-2019 Sources: The World Bank, eMarketer
  8. 8. 8 § Launch of card-on-file digital wallets § Partnership with merchants to develop mobile apps The market demonstrates a recommitment to the affluent Banks, card networks and tech companies are adjusting their focus to prioritize smartphone holders § In 2015, market players invested in A) contactless mobile payments by developing digital wallets and non-NFC technology; and B) enabling m-commerce through card-on-file wallets. § Mobile money is still a priority in countries where there is government support and market collaboration. Product focus of market players, 2015 Most agileLeast agile Card networks § Enabling contactless mobile payments (NFC and non-NFC) § Development of white label mobile wallets § Expansion of e-commerce gateway services § Development of loyalty programs for banks and merchants § Enabling integrated in-app payments § Partnerships to enable companion card mobile money services § Enabling in-app payments § Development of digital wallets for e-commerce and physical purchases § Optimizing online banking platforms for mobile devices Technology companies Telcos Banks
  9. 9. 9 What opportunities are market players pursuing?
  10. 10. 10 Product Country Launch date Involved entities How it works Billetera Móvil Colombia Q3 2015 Bancolombia, MasterCard Via QR code Aval Pay Colombia Q3 2015 Grupo Aval, CredibanCo YellowPepper Via QR code Colombia Q4 2015 Banco Davivienda, Citibank, CredibanCo, YellowPepper Six digit one-time passcodes Yepex Wallet Mexico 2015 YellowPepper, eGlobal, Banamex NFC, BLE, QR codes, six digit one- time passcodes BBVA Wallet Mexico Q2 2015 BBVA Bancomer NFC, Host Card Simulation PayClub Ecuador Q4 2015 Diners Club of Ecuador, Banco Pichincha, YellowPepper Six digit one-time passcodes Samsung Pay Mexico, Colombia 2016 Samsung, Loopay Magnetic Secure Transmission Contactless mobile payments With services for the unbanked stagnated and unprofitable, mobile financial services for smartphone holders are on the rise “Providing banking services to the unbanked wasn't paying enough for us to survive, so for the time being we've left that market.” - YellowPepper Recent and upcoming launches § 2015 saw the launch of several mobile wallets that build on existing infrastructure (non-NFC), which accelerates rollout and makes it affordable to consumers and merchants. § Only Brazil has widespread penetration of NFC terminals, and the number of NFC enabled smartphones (mainly the iPhone 6) in the region is still limited. Sources: Electronic Payments International
  11. 11. 11 M-commerce digital wallets With the onset of m-commerce, companies are investing in technology to capture market share $1$3$4$5 $20 $47 $0.1$0.3$0.7$0.8 $4 $8 PeruColombiaMexicoArgentinaBrazilLatAm E-commerce M-commerce 24% 60% Latin America E-commerce M-commerce § Late onset of mobile commerce due to customer fear of fraud, clumsy mobile sites and limited credit card penetration has deterred payment companies from taking m-commerce seriously. § But maturing infrastructure and technology is setting the stage for high m- commerce growth. § Banks and card networks are now setting their sights on the development and launch of m-commerce digital wallets: Digital commerce*, 2015, USD billions Digital commerce growth, 2015-2016 USD billions In 2015, Visa launched Visa Checkout in Colombia and Mexico. In 2015, VisaNet in Peru partnered with Entel and other merchants to develop card-on-file mobile apps Since 2013, several digital wallets have launched in Brazil, including: Atakus Sources: eMarketer, Internet Retailer, interviews, AMI analysis *Excludes travel and event tickets
  12. 12. 12 Looking ahead Providers have formidable challenges to overcome for smartphone-based mobile payments to take off Contactless mobile payments M-commerce digital wallets Factors for success § Rapid growth of smartphone penetration § Most new applications build on existing infrastructure § Rapid growth of smartphone penetration § Growing time constraints of the middle and upper classes Opportunities § Development of loyalty programs § Development of prepaid cards in lieu of credit cards § Cash on delivery e-commerce/phone sales § Development of prepaid cards for e- commerce § Rapid growth of emerging m- commerce segments, such as taxis, telecom, and entertainment Potential road blocks § Low credit card penetration § Are mobile payments more convenient than traditional credit card payments? § Security concerns § Low penetration of m-commerce sites among merchants § Low credit card penetration Work still to be done § Intensive marketing campaigns by wallet providers to affect a change in behavior among consumers § Continual merchant training § Coordination between banks, payment gateways, processors and merchants to improve e-commerce conversion and authorization rates § Intensive consumer education campaigns to encourage wallet adoption
  13. 13. 13 New potential for mobile money
  14. 14. 14 Regional Overview Mobile money usage and growth potential varies widely by market Mobile maturity in 2016 Leaders in mobile money penetration Significant mobile money growth potential Limited mobile money growth potential Group 1: Leaders in mobile money penetration Haiti, El Salvador, Honduras, Bolivia, Paraguay Mobile money has penetrated 7%+ of all mobile phone subscriptions Group 2: Significant mobile money growth potential Brazil, Mexico, Colombia, Peru, Ecuador, Guatemala Large correspondent bank networks, favorable legislation, high penetration of mobile phones, large remittance market Group 3: Limited mobile money growth potential Nicaragua, Costa Rica, Panama, Venezuela, Chile, Argentina, The Caribbean (except Haiti) Limited/no correspondent bank network, unfavorable legislation, no mobile money traction
  15. 15. 15 A selection of live services in 2016 In most cases, mobile money penetration remains disappointing Country Service Partners Year launched # of users Mobile subscriptions (2013) Penetration Bolivia Tigo Money Tigo 2012 700,000 (2014) 10,425,704 7% Brazil Meu Dinheiro Claro, Bradesco 2013 271,099,799 Brazil TIM Multibank Caixa TIM, Multibank Caixa, MasterCard 2015 271,099,799 Brazil Zuum Vivo, MasterCard 2013 384,000 (2015) 271,099,799 0.1% Colombia Ahorro a la Mano Claro, Tigo, BanColombia 2013 280,000 (2015) 50,295,114 1% Colombia DaviPlata Tigo, Claro, DAVIVIENDA, Redeban 2011 2,000,000 (2014) 50,295,114 4% Ecuador Mobile Money Platform Movistar, Claro, Banco Central de Ecuador 2015 45,670 (2015) 17,541,754 0.3% Guatemala Tigo Money Tigo 2011 250,000 21,716,357 1% Haiti Tcho Tcho Digicel, Scotiabank, Yellow Pepper 2010 1,000,000 + (2011) 7,160,200 15% Mexico Transfer Telcel, Banamex, Inbursa 2012 105,005,729 Paraguay Tigo Money Tigo, Banco Continental, Itaú Unibanco, Vision Banco 2008 1,200,000 (2015) 7,053,297 17% Peru Tu Dinero Movil Movistar, MasterCard, NovoPayment 2014 29,793,297 Sources: GSMA MMU Deployment Tracker, UNData, Tigo, Bancolombia, Exponews, Banco Central de Ecuador, Agrobanco, Telesemana, Telesintese, Elsalvador.com, interviews
  16. 16. 16 Steps to create interoperability The need for interoperability Interoperability: Essential to scaling mobile money Success of MM has stalled due to closed-loop infrastructure. A regional trend toward interoperability makes MM more viable. § Almost all mobile money services in the region are closed-loop, functional across only one MNO network § Users cannot send or receive money from a user on a different MNO network § Closed-loop severely reduces platforms’ utility to users § Non-interoperability is not an obstacle when one MNO has majority market share. § When a mobile money user can interact with peers and merchants on any mobile network, the platform’s potential increases exponentially. § When mobile money can be used anywhere for anything, it becomes a more viable replacement for cash “Mobile money will only be successful if people consider it to be equivalent to cash. Full interoperability across banks and telcos makes this possible.” –Pagos Digitales Peruanos 1. An enabling mobile money legal framework must be in place to a) incent companies to issue mobile money and b) protect consumers. • Countries with MM regulatory framework include Peru, Bolivia, Paraguay, Brazil, Nicaragua and Guyana. 2. A large agent network must be in place to a) maximize MM utility and b) evangelize MM to consumers. 3. A well-positioned industry organization must take a strong leadership role to orchestrate interoperability. Country # of bank correspondents Brazil 375,000 Colombia 42,000 Peru 30,000 Mexico ~30,000 Closed loop services Sources: GSMA. Pagos Digitales Peruanos, Bloomberg BusinessWeek, Fundacion Capital, CAF, interviews
  17. 17. 17 Mobile money case study: Peru’s BIM Peru is rolling out its much anticipated, fully interoperable mobile money platform A Peruvian mobile money launched in February 2016, enabling banks and non-bank entities to issue mobile money. • Salary payments • Political campaign contributions • Integration with e-commerce gateways • Social benefit payouts Sources: Gestión, Pagos Digitales Peruanos, interviews What is BIM? § Charge led by the Peruvian Bank Association (ASBANC) § Interoperable across three telcos and 33 financial institutions. The first in the world of its kind. § Currently operating in pilot stage with 3,000 users § Is supported by a network of 40,000+ bank and non-bank correspondents § Software developed by Ericsson § Paid for and subsidized by participating banks and telcos BIM will be rolled out in three phases: 1 PHASE Cash-in/cash-out, P2P transfers and mobile tops-ups will be enabled (Q1 2016) 2 PHASE BIM accounts will be interoperable with traditional bank accounts, and merchant payments and bill pay will be enabled (~Q3 2016) 3 PHASE Integration with public transportation, B2B applications, international remittances (~Q1 2017) In late 2016, BIM will release an RFP for the development of a BIM smartphone app. Potential future applications
  18. 18. 18 BIM Best Practices A solid commitment to financial inclusion and inspiring leadership has made BIM possible Key success factors for the Peruvian Bank Association: § Progressive mentality with eyes on the future § Fear of competition from MNOs and of becoming obsolete § Exceptional leadership with an emphasis on financial inclusion § Pressure from participating banks § Fear of a poor reputation for not prioritizing financial inclusion § A collaborative culture among banks and telcos § Patience and long-term commitment from all involved Will it succeed? – Still highly speculative, but BIM has several factors in its favor: • One consistent message among various entities will facilitate user registration, education and use. • A large agent network is already in place. Potential Pain Points • BIM is not free. The $0.15 charge to P2P may seem steep to low-income users. • Its low-tech application is uncomfortable for smartphone holders and may deter the mid- high- level income users Sources: Gestión, ASBANC, interviews, AMI analysis Interoperability –How did they do it? Long-term commitment § All fee revenue will flow to Pagos Digitales Peruanos (company created to manage BIM) to cover the cost of the platform. Banks will not earn fee revenue until the platform reaches scale, in five+ years § Banks understand that the real opportunity lies in eventual cross-selling of payment cards, loans and other banking products to BIM users.
  19. 19. 19 Opportunities going forward Banks have exciting opportunities to cross-sell products to MM users but face increased competition Predicted changes Potential winners Risks for incumbents More mobile money applications will become available Consumers, merchants, telcos, banks If MM replaces card transactions, card networks and banks will lose interchange and fee revenue. Non-bank entities will plug into MM networks, increasing competition to house MM accounts and gain access to user data Consumers, non-bank financial entities, technology companies Banks will go head to head with incoming players vying for mobile money accounts and user data. Market players will have cross- selling opportunities Banks, card networks, tech companies, telcos New players, likely agile tech companies, will begin offering competing products, i.e. companion cards, loans. Costs to merchants will fall Merchants, consumers If accepting MM is more convenient and cost effective for merchants than cards, card payments could decline. Correspondent bank networks will expand outside urban areas Banks, correspondent bank administrators, acquirers, card networks Expansion will be costly for banks. Card networks may be excluded from the process. Under interoperable MM networks, new opportunities and risks arise
  20. 20. 20 Conclusion
  21. 21. 21 Conclusions: A long road ahead, full of potential Providing financial services to the unbanked is a costly endeavor requiring a collective effort. New investment in mobile payments has flowed away from the unbanked to middle-class and affluent smartphone users. Interoperability and building on existing payment infrastructure are key factors for success. Mobile payments in Latin America are still emergent, no definitive market leaders. There is ample space for new player entry, product exploration and innovation. As first-to-market players do the hard work of laying groundwork and educating consumers, new players will enter the market. Competition will become increasingly fierce. Smartphone-based P2P payments have not yet arrived in Latin America. The region could therefore represent a) terrain ripe for local innovation; or b) the next frontier for established P2P payment providers (Venmo, Facebook Messenger).
  22. 22. 22 About AMI AMI is Latin America’s leading independent market intelligence consultancy Our founding partners helped pioneer the field of market intelligence in Latin America Our consultants have advised over ½ of the region’s 100 largest strategic investors over a span of two decades AMI consultants have conducted close to 2,000 client engagements in Latin America since 1993 Our consultants have worked in every market in Latin America Our holistic approach to market intelligence is unique. We combine market research, competitive intelligence, political analysis and economic forecasting in our studies. Few others do the same in Latin America Lindsay Lehr, Senior Director +1 (305) 873-4311 llehr@americasmi.com

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