Digital Money, Mobile Wallets and Latin America

A recent wave of global and regional announcements regarding mobile wallets and
payment systems has casual and close followers alike asking some the same

What exactly are they talking about?

Whether the statements are promoting digital money, mobile payments, mobile
banking, prepaid or a mobile wallet, one thing is certain: the lack of consistency in
terminology and the vagueness typical of early product releases has made the task
of distinguishing all the more difficult with each new announcement, confusing
would-be industry participants and potential end-users. So, it would seem that
some demystifying is in order:

Simply put, mobile wallets aim to create a phone-based equivalent of a physical
wallet -- a cloud and/or SIM-based collection of all the personal identification,
financial and non-financial account information we might carry with us every day.
The different money, payments and banking offerings refer mostly to the ability to
purchase and perform other value-based transactions with a mobile handset --
almost always a smartphone. These may work in concert with or independent of a
so-called mobile wallet and may or may not have an associated physical card or a
traditional deposit account. In addition, some of these are open- or closed-loop,
meaning they can be used almost anywhere or with individual or select parties,

In our region, as in other emerging markets, these details are very important given
the fact that more than 90% of mobile users are on prepaid plans -- many of them
unbanked -- and use devices with varying features and capabilities to match their
individual budgets and technical abilities.

Who are the key players?

As the late author and professor C.K. Prahalad informed us in his seminal book,
The Fortune at the Bottom of the Pyramid, the affordability, accessibility and
availability of each of these offerings depends on your income, where you live (or
roam), and your device's capabilities. Present examples include Google Wallet
(closed-loop, U.S. only), Facebook Credit (closed-loop, global, proprietary
currency), Apple's Passbook (loyalty) and Safaricom's M-Pesa (stored value,
money transfer via SMS, Kenya).

In Latin America, to date we've seen the arrival of initiatives to improve mobile
payment transactions and incorporate unbanked users such as Transfer in Mexico
(Telmex with Citi/Banamex and Inbursa) and Wanda (MasterCard and Telefonica) in Argentina, LATODO and Plata (Servitebca with Interbank in Peru, and with
Venezolano de Credito in Venezuela, respectively) Yellow Pepper in Haiti, and TPago in the Dominican Republic.

In short, these are a series of different, early-stage ventures comprised of some
combination of telcos, acceptance networks, prepaid program managers, banks,
technology companies and operating systems.

What business are they after?

What each of them shares is a common motivation: to capture the favor of today's
and tomorrow's increasingly mobile-device dependent user and hence their
relationships, transactions, and related data.

Given the way the mobile phone has gradually replaced or replicated nearly every
item on our nightstands (alarm clock), desks (email, browser), briefcases, purses
and pockets (agenda, reading material, games, camera), and even our televisions,
it stands to reason that the wallet would be the next object of interest. And,with
good reason.

What a marvelous endeavor: to take the most indispensable and ubiquitous
personal product of modern life and give it greater transactional capabilities,
simplifying the collecting, spending and interchanging of various "currencies", from
legal tender to loyalty points. Naturally, such a tool would be able to integrate with
whatever financial tools you could afford, including entry-level products such as
stored value and public assistance accounts, as well as savings, credit, loyalty and
retail store accounts.

Sounds convenient, right? Now, start integrating these accounts with some of your
smartphone's other capabilities such as calendars and reminders ('A payment is
due'), GPS ('Low balance. Reload location in 25 feet'), SMS ('New e-coupon
credited to your account'), apps from your favorite services, merchants and games,
and maybe new features like contactless near field communications (NFC), and
you've got a pretty interesting set of value propositions.

What does this world look like?

Here's a fun exercise. Look inside a typical Latin American consumer's wallet
today and imagine what their mobile wallet and future might look like...

• More local apps: User-friendly apps are great for simplifying the delivery of
information and services. They will also be ideal for creating entry-level
voice recognition apps for technically unskilled or illiterate consumers who
may be otherwise too expensive to serve in the physical world.

• Better security: For the unbanked consumer, electronic money will
continue to be more secure than carrying physical cash, verifying identity
through passwords, PINs, and maybe biometrics in the future. For the banked, one can envision an instant "block all" feature to their accounts in
the event a physical wallet is stolen or an identity compromised.

Job marketplace: From skilled entrepreneurs, to street vendors to selfemployed blue collar laborers with stored value accounts will list their
services, and will be found, sent for and paid electronically by those that
would employ their services.

Better top-up and bill payment (reduced account delinquency): Let's face
it, those paper minutes, long lines and late bills aren't good for the payer or
provider, so how about waiving the bill pay fee for paying electronically on
time? The customer avoids the line in the street, the service stays on and
the provider's cash flow improves. Win-win.

More upselling and maturing customer relationships: It's much easier
to know when an individual customer is ready for an offer when you have
data. In the future, companies will provide offers to products and services
based on hard data and send them to the customer electronically and on a
timely basis. Capturing, storing, structuring, selling, and accessing data
become new revenue source and a key component in this new world.

More effective promotions: When a functional postage system is nonexistent and many people lack a recognized legal residence, companies
have to spend more to promote. Not anymore. Send that discount and
reward that act of loyalty electronically to the mobile. Companies will use
data to decide whether it's better to offer individual customers a rebate or
special interest rate for that new washer and dryer.

Electronic documentation: Who doesn't love the idea of less pieces of
paper to put away and file? From transit passes to ID to receipts to proof of
purchase and warranties, all will be provided electronically and immediately
to the mobile.

Virtual goods: If companies like Zenya can sell billions of dollars in virtual
goods on Facebook, then millions will surely want a virtual version of their
favorite saint to replace the one in their physical wallet.

But seriously, to be successful in this new world of 100%-plus mobile penetration,
companies in our region will need to first think like their current and would-be
customers. This means understanding lifestyles, habits and needs in order to
figure out how to best bridge their physical and new virtual worlds to generate the

What are the challenges?

If our mobile payments and wallets environment were an organism today, it would
have a lot of muscle (telcos, networks, banks) and few arteries and interconnecting tissue (interoperable platforms, developers, and smaller specialized players). A
greater number of organizations will need to collaborate in order to create
successful mobile services and distribution models for the region, re-inventing and
repurposing existing examples and in the process nurturing the small breed of
technical specialists and managers that are key to addressing the inherent issues.
These issues can be broken down into five parts:

Commercial: Establishing the common goals, value propositions to
participants and end-users, roles, developing different commercial strategies
at the same time, and business models for sharing common assets and

Technical: Interoperability. There are a lot of capable people with a great
track record of building closed things. Opening and interconnecting them in
meaningful ways is perhaps as much of a technical challenge as a cultural

Operational: Just because a group of organizations come together to share
something of great interest and importance doesn't mean that it fits into their
operations or core businesses. This is where the work of identifying
responsibilities and different operating models becomes key.

Regulatory: The regulatory environment in our markets is poorly prepared
for this new mobile world, mainly because of its lack of legal clarity on some
key topics, and because, in fairness to the framers, no one could have
imagined this world. It's time to understand the underlying technologies,
new players, cash-in-cash-out models and safeguards, weigh the potential
social and economic impact an revisit the rules.

Confidence: The first thing a new user does when he loads cash on a
stored value account is walk around the corner and take the money back out
of an ATM. I've seen it myself. Trust is everything. Consumers and industry
participants alike need to know that these systems are guaranteed,
transparent, well administered and that their information is secure.
How do we move forward?

Another buzzword these days is 'ecosystem' -- as in, payments ecosystem. This is
the idea that once fairly open and accessible systems are set in motion, they will
flourish by attracting a diversity of interconnected and interacting players large and
small, spurring innovation and economic activity.

It's a wonderful concept and every bit worth pursuing, but it will not happen until all
of the recipe's other ingredients are present. These are leadership, drafting a road
map, collaboration, education, passion and long-term commitment. It takes special
skills to lead and collaborate, and it takes courage to embrace diversity. But it can be done. Thankfully, the wireless industry has given us some historic and concrete
examples like GSM, Bluetooth and other consortium-led efforts.

If we continue at the current pace, it could take our region 15 years and millions of
dollars wasted in isolated iterations. However, if done properly, 15 years can be cut
to five. 2018 sounds pretty good to me.