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The mobile money business in Latin America and the Caribbean (LAC) is enigmatic. By some accounts, mobile finance in LAC has already succeeded. Nicholas Kristof's exuberance about mobile banking in Haiti has been well-tweeted. But LAC's mobile financial services lag behind Africa's by approximately six years. And whether a Latin American mobile money initiative will achieve the same success of Kenya's globally acclaimed M-PESA service remains to be seen. Enablers The potential for mobile money in LAC is great. According to the head of mobile financial services at TelefĂƒÂłnica, only 35 percent of people have bank accounts and 19 percent have bank cards, while almost 80 percent have mobile phones. This large unbanked population accounts for 45 percent of purchasing power in the region. A scan of mobile money adoption enablers in the region inspires bullishness. Demographics: LAC's population is young and growing. The region's demographic composite features both an urban/rural and banked/unbanked split, an ideal scenario for the industry's development. Client Base: The majority population within LAC is young, poor (with rising income levels), and unbanked, representing the ideal client base for a successful mobile financial service program. Compelling Application: Technology is arguably the easy part of mobile finance. There is no shortage of compelling applications. The suite of mobile financial services includes: m-banking for the existing banked population; m-top-ups allowing the user to recharge airtime; m-payments for paying bills and using the m-wallet to transact with retailers; m-B2B distribution allowing companies to transact without the unnecessary risk of handling cash; m-transfers including P2P, B2P, and G2P; and remittances, both domestic and international. Regulatory Environment: The lag in mobile financial services is partially due to a lack of regulation. In general, the regulatory environment is undeveloped in LAC with some country exceptions, namely Mexico. In most LAC countries, the payments regulator, typically the central bank, is a separate entity from the banking supervisor, or superintendencia. Regulators are currently studying mobile money schemes in order to create regulation that facilitates industry development. Consistent with most of the world, mobile network operators cannot operate as banks, meaning financial institutions own the product while MNOs market the product through pre-existing channels. Both the payments regulator and the banking supervisor are primarily concerned with the safety of customers' money. Therefore regulators assert that financial institutions are ultimately responsible within the mobile money ecosystem. While the regulatory environment may dictate

mode of entry by mobile financial service providers, it will not deter the industry's development. Financial inclusion with the help of mobile technology is in the interest of governments throughout LAC. Quality of Alternatives: There are branchless banking initiatives that do not make use of a mobile platform. It is conceivable albeit unlikely that these branchless (non-mobile) alternatives become more attractive than mobile financial services. If security of the mobile money ecosystem does not come under attack then quality of alternatives will not be a threat. Business reality If enablers seem to be in place for industry success, why is there a delay in rolling out mobile financial services in Latin America? Your author identifies two reasons. First, MNOs in Latin America have not initiated mobile money activity with the same enthusiasm shown by some small bank-led programs. Contrary to what some analysts have written, mobile financial services are driven by MNOs (in partnership with financial institutions, distribution networks and technology providers). Leading MNOs in Latin America make a lot of money and simply have not taken a strong interest in the mobile money business. Secondly, industry executives claim the successful roll out of mobile financial services in Latin America hinges on the mobile channelization of international remittances. However, leading money transfer companies do not want to disrupt the existing business model. Telefónica, a Spanish telecom and leading operator in LAC, seems ambivalent about mobile money. In May 2008, the MNO announced plans to launch a new mobile money service targeting 175 million people in Latin America. The 2008 initiative never transpired. In early 2010, Telefónica announced that technology provider Trivnet won the contract to supply the MNO with mobile banking software in Latin America. Then, in early 2011, Telefónica announced a joint venture with Mastercard to roll out mobile financial services in twelve countries. Presumably, this new arrangement with Mastercard takes Trivnet out of the picture. But does it mean that Telefónica is serious about mobile money in the region? Only time will tell. Remittances are especially important to LAC, which is the fastest-growing and greatest volume remittance market in the world. The nearly $60 billion in remittances sent in 2010 exceed the combined sum of foreign direct investment and official development aid in all but a handful of LAC countries and serve as the primary sources of foreign exchange for many receiving countries. Remittances account for more than 10 percent of GDP in Guatemala, Jamaica, Nicaragua, El Salvador, Honduras, Haiti and Guayana. The leading international money transfer company currently controls approximately 26 percent of the U.S.-to-LAC remittances market. Since mobile money transfer is a cheap and safe alternative to traditional remittance services, the mobile channel poses a threat to the market leader's core business, which relies strategically on its agent networks. Presently, the amount of money remitted to LAC via mobile is tiny. Not if, but when The development of mobile money in LAC will occur, but its pace depends on that of the big

player-stakeholders like TelefĂƒÂłnica.

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Will Mobile Money Succeed in Latin America  

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