The latest analysis of the mobile money industry in Latin America and the Caribbean (LAC) from the GSM Alliance provides a detailed summary of how consumers and businesses in the region used their smartphones to conduct digital transactions in 2019. It would be insightful to extrapolate these trends to the present day, especially with the pandemic serving as an accelerant in driving the adoption of mobile money.
This report is based on an annual survey designed to capture quantitative and qualitative information about the performance of mobile financial services around the world. The number of registered mobile money accounts in the LAC region expanded 2.5% year on year to 26m in 2019. That increase is low compared to the global average of 10.2%, but that is in light of the phenomenal growth elsewhere, notably sub-Saharan Africa.
While LAC mobile money transaction volumes fell 24% year on year to 601m the combined value of payments increased slightly to US$16.5bn (up 1.4%) suggesting consumers are increasingly confident about using their smartphones to make more significant purchases. Activity rates in the region (the number of people using their accounts for 90 days or more) is also the highest in the world at 48%, far exceeding the global average of 35%. Closely correlating to population density, the majority of registered accounts (53%) are on the continent of South America, with Central America accounting for 34% and the Caribbean 13%.
While the LAC mobile money market is relatively immature compared to other regions such as Africa and Asia, it is promoting greater financial inclusion along similar lines. That is particularly true in LAC countries where large segments of the population are “unbanked” – those with no credit history, or who don’t meet the requirements to open bank accounts or access loans.
Hence we see the penetration of mobile money highest in countries like Honduras, Paraguay and Haiti for example, and simultaneously lower in wealthier countries like Brazil and Argentina which have higher GDP per capita. Even in comparatively rich Argentina, only 49% of people have bank accounts, far below the global average of 68% according to World Bank data from 2017, with the figures similarly low in both Columbia (46%) and Ecuador (51%).
Cash payments still dominate
There were 31 LAC mobile money providers in 2015, a number which fell to 27 by 2018 and remained the same in 2019. While some services scaled up their operations, others dropped out of the race due to competitive pressure and poor end-user awareness of service availability and capability in some markets. Seven of those mobile money services, spread across 15 countries, have over 1m registered accounts though the majority of purchases and payments in the region are still cash-based.
Of an estimated 78.5m transactions circulating monetary value in the mobile money ecosystem during 2019, 67% involved paying cash in and 77% paying cash out calculated the GSMA, with person to person (P2P) payments (88%) vastly outnumbering merchant transactions (12%). Consequently, the GSMA concluded, more value exits the LAC mobile money system than remains in circulation while a large share of its value leaves in cash rather than in digital form.
Certainly, the LAC payments market has historically been more reliant on cash for point of sale (POS) and e-commerce transactions compared to other parts of the world. 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, for example. This situation prompted Mexican retailer OXXO to launch a solution that allows online buyers to buy via cash at their local store in 2017.
Use of electronic wallets (eWallets) in the region is growing, but there remain marked local variations in usage of (and attitudes to) digital payments from one country to another. 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.
Variety of mobile payments in use
One to many or bulk disbursements, predominantly cash payments for goods and services rendered or social cash transfers, make up two-thirds of total mobile money transaction value, with bill payments another 27%. Utility companies, for example, were the recipients of 45% of payments in the GSMA’s survey. At the same time, bulk disbursements driven by government agencies as a form of social cash transfer scheme made up a third of the total transaction value.
International remittances remain a small sub-segment of activity, however (4%) and even less so with mobile payments specifically (0.13%), although mainly because so few mobile money services in the region offer suitable products. The GSMA also noted an increased incidence of mobile money account to account (A2A) interoperability in the region, notably in Bolivia, Peru and Mexico. One reason for this is the reach of mobile money agents, representing around 46 per 100,000 of the population, higher than both ATMs (44) and bank branches (15).
A third of all incoming transactions in the LatAm region during 2019 were digital, slightly above the global average (31%). However, the value of digital out payments was considerably smaller at 23% of the total (and below the global average of 37%), highlighting how money often leaves the system in cash.
Of the out payments total (received by the payee) bills paid digitally accounted for 14.2% of all transactions with many to business (M2B) 4% and off-net P2P via mobile money networks (vouchers, coupons, tokens etc.) rather than GSM networks 3.4%. Bulk digital payments accounted for almost a quarter (23%) of transactions paid into LatAm accounts (by the payer) in 2019, with business to many (B2M) payments 9%, estimated the GSMA.
There were also differences in the type of mobile money transactions being conducted. A large proportion (39%) constituted air time top-ups for people adding credit to their mobile phone accounts, for example, although these contributed only a fraction of the value (1.4%). In contrast, while person-to-person (P2P) money transfers made up 29.4% of the transaction volume, they were worth 47.4% of the total value given the much larger sums they typically involved. The evidence also suggests that LAC consumers tend to purchase lower-value goods and services using mobile payment channels, with merchant payments accounting for 5.7% of transaction volumes but only 1.8% of the transaction value.
2020 brings Coronavirus induced changes
Further growth should be driven by various new platforms and partnerships between service providers, banks and eWallet specialists next year, with the GSMA highlighting “conducive” regulation as a catalyst for merchant and consumer market entry and scale. It believes that multiple LAC countries could benefit from regulations which help streamline user onboarding processes by easing Know Your Customer (KYC) requirements and processes, for example.
Government-backed services may also make a difference as national regimes work harder to expand their e-commerce economies and expand financial inclusion further. The adoption of Open Banking frameworks in Mexico and Brazil should encourage partnerships and greater competition by enabling the sharing of account details between different fintech providers and levelling the playing field between established banks and new market entrants.
The Central Bank of Brazil launched its Pix payment system today, a system that will confirm online transactions within a few seconds and is expected to bring new consumers onto mobile payments platform (though it could also take subscribers away from other services).
And in Mexico, a free mobile electronic transfer system based on smartphone QR codes and NFC dubbed Cobro Digital or CoDi (Digital Purchase) was launched jointly by the Mexican Central Bank, the Mexican Bankers Association (ABM) and the Mexican Association of Popular Financial Societies (AMSOFIPO).
Projected increases in smartphone usage too should help to expand the ecosystem, with the GSMA Intelligence forecasting penetration will increase by 10% from 69% in 2019 to 79% by 2025. As more LAC consumers use smartphones, the opportunity to expand mobile money value and transactions rises, particularly for MNOs that can deploy direct carrier billing (DCB) to fund consumer purchases amongst the “unbanked” segments of the population without access to credit/debit cards.
In October 2019 Telefónica announced a partnership with DOCOMO Digital that will enable regional MNOs such as Vivo and Movistar to accelerate the adoption of DCB for the purchase of digital and content services. Starting with Movistar Chile, millions of customers will be able to buy goods from merchants and app stores securely using their mobile phones, with anticipated regulation paving the way for further digital mobile payment opportunities in public transportation and e-ticketing.
And while it may be too early to define the full impact of economic restrictions introduced to combat the effects of the Coronavirus pandemic in 2020, there seems little doubt that larger numbers of LAC consumers will engage in e-commerce and adopt digital payment methods as an alternative to cash as has already happened in other parts of the world.