Institutional and regulatory environment for MFSWhat makes Latin America different?

Rio de Janeiro, May 25th 2010

Álvaro Martín Enríquez (amartin@afi.es)

http://movilybanca.afi.es

• Could early experiences be replicated in another region?

2

Why we looked at Latin America in 2007

Source: www.outline-world-map.com (2009)

3Source : Honohan (2007)

Access to formal financial services was relatively low…

44

Branches and ATMs per 100.000 inhabitants (2006)

Source: Beck, Kunt & Martínez-Pería (2006) Banking Services for Everyone? Barriers to Bank Access and Use Around the World

Traditional financial distribution was insufficient…

0 20 40 60 80 100 120 140

Spain

USA

Brazil

Argentina

Chile

Ecuador

Colombia

Mexico

Peru

Bolivia

ATMs

Branches

5

Large remittance flows were not being captured by banks…

• US$ 66.5 billion remittance inflows in 2007

0%

20%

40%

60%

80%

100%

El Salvador

Honduras

Ecuador

Mexico

Peru

Bolivia Colombia

R. Dominicana

Jamaica

Guatemala

Nicaragua

Recepción Remesas por Entidad Financiera Receptor con cuenta de ahorro

Remittances received through

financial institutions

Source : IADB (2009)

Recipients with bank accounts

6

Access to formal financial services vs. GDP per

capita in emerging countries

Cellular subscribers per 100 inhabitants vs.

GDP per capita in emerging countries

There was room for improvement…

Source: Afi from Honohan (2007), IMF (2007) & ITU (2008)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

0 5000 10000 15000 20000 25000 30000

Africa Europe Latin America Asia

0

20

40

60

80

100

120

140

0 5000 10000 15000 20000 25000 30000

Africa Europe Latin America Asia

7

80% of Latin Americans were covered by cellular networks…

Source: GSMA (2007) and Latin America and the Caribbean (LAC) Population Database (2000) . Population density in people/km2

Cellular

coverage

(2007)

Population

density

(2000)

Mobile penetration was growing fast…

88Source: ITU (2009)

0

20

40

60

80

100

120

140

2002 2003 2004 2005 2006 2007 2008

Ce

llu

lar

su

bsc

rib

ers

pe

r 1

00

in

ha

bit

an

ts

América Latina Emergentes Asia Emergentes Europa África

Cellular subscribers per 100 inhabitants

Latin America Emerging Asia Emerging Europe Africa

9

Some of the largest MNOs were operating in the region

0%

20%

40%

60%

80%

100%

ARG BOL BRA CHI COL R.DOM ECU MEX PAR PER URU VEN

Cu

ota

de m

erc

ad

o

Telefónica América Móvil Telecom Italia Otros

Source: Pyramid Research (2007)

Market share (subscribers) in Latin American countries (2007)

10

Despite this, Latin America still lagged behind until recently

Source: www.outline-world-map.com (2009) and GSMA Mobile Money Deployment Tracker (2010)

2001 → 2002 → 2003 → 2004 → 2005 → 2006 → 2007 → 2008 → 2009 → 2010

• 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

11

What were we missing?

Source : www.outline-world-map.com (2009) and GSMA Mobile Money Deployment Tracker (2010)

77,4% 77,4%

62,3%

43,4%

18,9%15,1% 15,1%

5,7%1,9% 1,9%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Airtime Purchase

Domestic Money

Transfers

Bill Payments Merchant Payments

Links with Bank

Accounts

International Money

Transfer

MFI Loan repayment or disbursement

Salary Payments

G2P Insurance

Shared roles between mobile operators and financial institutions

12

Carrier

Transactions,

application &

deposit

Application &

CarrierJoint Venture

Financial

Institution

Transactions &

depositPooled depositAccount-linked

deposits

BANK

MNOMNO

MNO

MNO

BANK

BANK

BANK

Source: Afi

3rd

parties

13

Certainty and openness in Latin American environments

Source: Afi & Bankable Frontier Associates (2009): How Enabling is the Latin American Environment for Mobile Money?

14

Services over banking

stores of value

(mobile banking)

Services over non-

banking stores of value

(mobile wallets)

Link Celular (Argentina)

Pichincha Celular (Ecuador)

Banco do Brasil (Brazil)

…

Nipper (Mexico)

Mobipay (Spain)

mChek (India)

Pago Móvil (Peru)

Additive models

MTN Banking (South Africa)

Wizzit (South Africa)

M-Pesa (Kenya)

Gcash (Philippines)

Smart Money (Philippines)

Orange Money (Ivory Coast)

Zap (Kenya, Tanzania, Uganda)

Oi Paggo (Brazil)*

Tigo Cash (Paraguay)

Mobile Money (Jamaica)

Mobi Cash (Morocco)

Transformational models

* Oi Paggo is a credit-based mobile payment system that requires no bank account, but it is not strictly a mobile wallet

Crandy (USA, France)

Obopay (USA)

PayPal Mobile (USA)

Classifying mobile financial services

COMPETITION

- Artificial entry barriers

15

Regulatory framework

TELECOMS REGULATION

- VAS

- Interoperability

- Number portability

PAYMENTS SYSTEM

REGULATION

(Central Banks)

- Access to payments systems

- e-Money

E-COMMERCE RULES

- Electronic signature

BANKING REGULATION

(Banking Superintendencies)

- Prudence

- Banking agents / correspondents

- AML/CFT

- Consumer protection

TAXATION

- VAT

- FTT

MFS

16

Institutional framework

Non-banking

financial institutionsBanks

Payments

processorsMoney senders

Telcos

Banking

supervisor

(Superintendency)

Payments

supervisor

(Central Bank)

NRAMinistry of

Telecoms

Consumer

protection body

Ministry of

Finance (Tax

Agency)

E-certification

body

Regulatory improvements are coming

17

• 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)

• …

Institutional and regulatory environment for MFSWhat makes Latin America different?

Rio de Janeiro, May 25th 2010

Álvaro Martín Enríquez (amartin@afi.es)

http://movilybanca.afi.es