In a series of interviews with Latin American market
players and analysts, Robin
Arnfield explores innovative developments being driven by
the region’s need to provide banking services to its unbanked
millions. Mobile payments and prepaid cards in particular stand out
as areas with major growth potential.
A lack of banking infrastructure has
long hindered progress in Latin America but is today making this
awakening economic giant a fertile ground for innovative payments
technologies such as prepaid cards and mobile phone-based
Stressing the need to develop the continent’s
payments infrastructure, Guillermo Kopp, executive director and
global research fellow at US consultancy TowerGroup, told EPI that
for vendors offering innovative payment models this represents a
significant growth opportunity. In particular, there is a pressing
need to meet the requirements of previously unbanked segments of
the population that are now becoming increasingly well off.
“This is especially the case in Brazil, where
there has been real economic growth and the lower segments of the
population now have access to financial services,” said Kopp.
“Innovative payments technology firms are
better positioned than traditional payments players to take
advantage of opportunities in Latin America,” he continued.
“This is because incumbents are hampered by
their large size.”
However, innovators still need to
work with incumbents such as banks, retailers and mobile network
operators, said Roy Sosa, CEO of US-based venture capital firm
M-Power Ventures and chairman of electronic payments services
business, Rêv Worldwide. M-Power Ventures focuses on investments in
financial technology start-ups such as Rêv, a global payment
solutions provider specialising in underserved markets.
“Rêv Worldwide works at both the sending and
receiving end with local banks, retailers and telcos,” Sosa
For example, in June 2009, Rêv teamed up with
Austria’s Raffeisen Bank to launch a Visa prepaid card in Romania.
More recently Rêv Asia Pacific and Central Bank of India have
launched a virtual MasterCard gift card for online shopping
Notably, RêvEurope, the company’s European
division, won an award at EPI sister publication Cards
International’s Cards & Payments Europe conference held in June
2009. The award recognised Rêv for outstanding innovation in the
global cards and payments industries, naming it “most promising new
Mozido, since October 2009 the new
name of Dallas-Texas-based mobile financial technology developer
Affinity Global Services, has separate partnerships with the two
dominant players in remittances, MoneyGram and Western Union.
Of particular significance is a partnership
with MoneyGram was announced in August 2009, allowing customers to
send money across MoneyGram’s global agent network to an account
that is associated with a mobile device.
“This represents a major change of focus for
MoneyGram,” said Mark Beccue, senior analyst, consumer mobility, at
US-based consultancy ABI Research.
“Western Union is very interested in mobile
remittances, and has a lot going on in that sector, including
cellphone-based transfers from the US and UK to Kenya, Malaysia and
the Philippines,” Beccue added.
“But MoneyGram has made its first step into
m-payments with its Affinity [Mozido] deal.”
Mozido is providing a mobile gateway between
MoneyGram and multiple mobile network operators in Asia, Latin
America and Africa. In a joint press release, Mozido and MoneyGram
said they are currently talking to a MNO which they expect to
launch a mobile remittance service with MoneyGram before the end of
According to Kopp, the challenge for
remittance services in Latin America is to find ways of cutting the
cost of both sending and receiving money.
“Traditional remittance services like Western
Union or MoneyGram are expensive, so there is potential for
electronic remittances that are low cost,” he said.
But Kopp is doubtful about the value of using
ATM networks for money transfers, as proposed by Privier, the
US-based developer of an ATM-to-ATM remittance system.
“The problem with remittance solutions
requiring recipients to pick up their cash at an ATM is the fact
that Latin Americans still prefer face-to-face transactions,” he
added. “There is also a lack of ATMs in rural parts of Latin
Despite the deals and service launches by the
new players, agent-to-agent based services such as Western Union
still dominate the US-to-Latin America corridor, said Gwenn Bézard,
research director at US advisory firm AiteGroup. For the
foreseeable future, agent-to-agent providers will continue to
dominate the market, he stressed.
“On the sidelines, there are emerging
providers like Xoom, which offers website-initiated transfers to
agents, and there are banks such as Wells Fargo offering
remittances from their branches and from their ATMs,” Bézard
“For the new services that are emerging, most
of the innovation will be in the sending side, for instance,
sending money online instead of going to a branch. It will be more
about providing the sender with convenience rather than reducing
cost. On the receiving side, most people will still prefer to get
cash at an agent’s office.”
But Red Gillen, a senior analyst with US
consultancy Celent, disagrees, arguing that the real innovation
will be mobile remittances at the receive side on the recipient’s
“In Africa and South East Asia, we are seeing
people using cellphone-based payment accounts,” Gillen said. “The
goal is to have money sent from abroad as a credit to your
cellphone. You either use the credit to top up your prepaid
cellphone airtime, pay bills, or pick up cash at an agent.”
Mobile payments are particularly attractive in
developing countries due to their lack of banking infrastructure,
ATMs and card acceptance, not to mention a lack of land-line
telecoms, Gillen stressed.
“The really big deal in remittances will be
domestic mobile P2P transfers, and Telefonica, the largest telco in
Latin America, is very interested in this,” said Beccue.
“In Latin America, there is a lot of migration
by workers from the rural area to big cities, and they want to
remit money back home. If they could go to the store where they buy
mobile airtime top-up, and get the agent to remit money to their
mother’s cellphone back home in the village, that would be
Beccue forecasts that the number of domestic
mobile P2P money transfers in Latin America will rise from 770,000
in 2008 to 3.6 million in 2009 and 8.3 million in 2010.
“In 2015, it will really explode, with 57
million transactions,” he said.
Kopp sees prepaid cards as offering
great potential in Latin America.
“Using prepaid cards at either end of the
remittance transaction could be very useful,” he said. “The sender
could remit cash to a prepaid card held by a relative in Latin
America that the recipient could use in a convenience store, either
for shopping or to withdraw cash.”
There are various options as to how the
recipient gets their prepaid card. Some companies such as Rêv mail
a prepaid card at the sender’s request to the recipient. Another
method is for the recipient to go to a bank branch or convenience
store associated with the remittance service and pick up a prepaid
“In the US, people often think of prepaid
cards as disposable, like a throw-away Starbucks card, but in Latin
America, prepaid cards are a means of establishing credit as most
of the population does not have bank accounts,” said Anabel Perez,
CEO of Latin America prepaid card issuer NovoPayment.
“Yet the spending potential of this audience
is in the billions.”
A study conducted by NovoPayment in June 2009
predicted that m-payments will be a key driver of reloadable
prepaid cards in Latin America.
“Eighty to 90 percent of Latin American
cellphone customers are already on prepaid airtime plans,
representing a huge business opportunity for reloadable prepaid
card providers and a value-added proposition for users who
currently rely heavily on single-use, scratch-off cards,”
NovoPayment noted in the study. “Linking prepaid general-purpose
reloadable cards to cellphone and other utility services provides
low- to middle-income consumers with the ability to buy airtime and
pay utility bills via text messaging, internet, phone or scheduled
direct debit, without an underlying bank account.”
Kristin Moyer, research director,
banking and investment services, industry advisory services, at US
consultancy Gartner, sees two trends emerging among the Latin
American banks she works with.
“Some of our Latin American [banking] clients
are going the cellphone route to reach the unbanked,” she said.
Enabling mobile phones to act as mobile
wallets is the model advocated by, among others, development
organisation the World Bank, UK-based MNO Vodafone, Telefonica, the
Inter-American Development Bank, and the Bill and Melinda Gates
Foundation (see page 9) for providing financial services to
unbanked consumers in rural areas.
“Other banks are working with government
agencies to install self-service kiosks at government service
centres,” Moyer said.
In countries such as Brazil and Mexico,
governments are working with the payments industry to encourage a
move from cash to electronic payments.
Whatever route banks go, a lot of IT
investment is needed.
“What we are seeing in countries such as
Brazil is that many banks have very old, homegrown IT systems,
which are inadequate for the new products and services they’re
developing,” said Moyer.
“Banks are being very innovative in
re-engineering their IT systems in the face of what they see as a 5
to 10 times’ growth in customers over the next five years.”
Indicative of the potential of growth numbers
such as these Latin America is region encompassing 20 countries
large and small, with a combined population of some 570 million
people and GDP of $3.33 trillion in 2008.
Profiles of innovators
In August 2009, LIME, the Caribbean
arm of UK telecommunications company Cable & Wireless, became
the first Caribbean carrier to partner with indigenous banks on
mobile banking services.
Using technology from ECIC Holdings, a St
Kitts-based joint venture between 10 Caribbean banks, LIME’s
customers with accounts at any ECIC member will be able to access
their banking information, pay bills and conduct other financial
transactions from their mobile phone.
Mobile banking services will be run on LIME’s
messaging platform in the five islands where the service has been
launched in phase one: Antigua & Barbuda, Dominica, St Kitts
& Nevis, St Lucia, and Turks and Caicos.
“Eighty percent of the Caribbean population
has cellphones, and so far the only m-payment activity has been
mobile top-up” said Dave Lott, senior vice-president at advisory
firm Speer & Associates. “But wireless carriers will be key
players in e-payments in the Caribbean.”
Focus of US remittance specialist
Nexxo Financial is on the provision of Nexxo Cajero, its
patent-pending self service remittance kiosks specifically designed
to serve Hispanic consumers in the US.
The advantage of Nexxo Cajero kiosks for
consumers is that instead of handing over cash at a counter and
filling out forms, they insert cash into a kiosk, and then they get
a free phone call to alert recipients that funds are on their way.
In addition, they can opt to receive an text message on their
mobile phone to confirm the remittance transaction has been
Nexxo Cajero kiosks enable Hispanic consumers
in the US to remit money to some 21,000 bank branches and pick-up
centres throughout Mexico, and a number of other Latin American
countries including Guatamala, Nicaragua, El Salvador, Chile, Peru
Major banking partners in Mexico include the
country’s largest bank Bancomer which provides access to 1,700
branches, Banorta which has some 950 branches and HSBC Mexico which
in July 2009 established a partnership with Nexxo which added a
further 1,400 branches. Partnerships have also been established
with major Mexican retail chains such as Soriana.
Using its own Cajero kiosks and through deals
with other financial kiosk operators, Nexxo provides self-service
remittances at 900 locations in the US. These locations include
remittance centres and also convenience stores.
“Our model is to go wherever the customer
goes,” explained Freddie Saba, Nexxo’s vice-president of business
development. “Despite the recession, we have seen growth in
transactions at the branches we acquired.”
In October this year Nexxo, which has tended
to focus on California, Arizona and Texas, further extended its
reach in the US with the installation of Nexxo Cajero kiosks in Del
Agro money transfer branches in Los Angeles and Chicago. Under a
deal with Del Agro’s owner Banco Agromercantil Guatemala, Nexxo has
acquired the branches, and handles all operations at the
The Del Agro sites are co-branded with Nexxo
so that Del Agro can retain its brand presence.
“This model provides benefits to international
institutions in the remittance industry as they can continue to
have a brand presence and interaction with customers in the US
without the high cost of operating traditional branch locations
here,” explained Nexxo Financial CEO David Alvarez.
During 2009, Nexxo has also installed Cajero
kiosks in US-based Aval Envios remittance centres that it acquired
from Financial One Group and BancoSal remittance centres that it
acquired from Banco Salvadoreno/HSBC El Salvador.
US start-up Privier has developed a
system enabling migrants to remit cash to their home country via
envelope-free ATMs. The company has been conducting pilots, and is
currently in talks with a big US bank and a Russian bank about
installing its system at their ATMs, said Privier CEO Charles
For anti-money-laundering compliance purposes,
senders and receivers both have to insert their debit card into the
ATM to identify themselves. However, no funds are debited from the
sender’s bank account, nor are they remitted direct to the
recipient’s account – instead, the sender deposits cash at the ATM,
identifies the recipient’s country by its international dial code,
and then prints out a 16-digit authorisation code. The sender then
contacts the recipient with this number.
“We decided not to offer a facility allowing
senders to text authorisation numbers to recipients’ cellphones, as
this could pose security problems, eg the code could be
intercepted,” Polanco said. “The advantage of using cash deposits
rather than bank account-to-account transfers is that cash
transfers clear and settle very fast.”
Rêv is active in m-payments,
international prepaid card reloading and cross-border remittances.
It already offers a US-to-Mexico service and is developing a
service for the US-to-Ecuador corridors, said Rêv Latin America CEO
Juan Pina. Rêv gives senders a choice of remitting to prepaid cards
and to agent branches for cash pick-up.
A promoter of Mexican dances across
the US, Tu-Dnro – ‘Your cash’ in Spanish – has teamed up with
TeleNet Services, a US prepaid card issuer, to provide electronic
remittance services to Mexican migrants attending its events.
TeleNet provides a Discover-branded prepaid card that migrants can
load cash onto, and have their wages paid direct to their prepaid
card. Tu-Dnro agents sit in booths in the dancehalls, offering to
remit funds from the migrants’ prepaid cards to their relatives’
debit cards issued by partner banks in Mexico.
UK-based mobile payments specialist
Upaid Systems operates RechargeBrazil.com, a website which enables
Brazilians living in the US to top up mobile phones belonging to
their relatives in Brazil. RechargeBrazil uses PayPal’s network to
transfer prepaid mobile phone credits to consumers who hold
accounts with Brazilian mobile telcos.
“We are too small to be able to take the risk
of going it alone, so we look for partnerships with other players,”
explained Upaid CIO Stephen Gibb. “Brazilian expats in the US can
use their US PayPal account to top up a Brazilian prepaid cellphone
account via our RechargeBrazil.com service.”
Upaid also offers web-based domestic mobile
top-ups in Brazil via the Recharge platform.
“Our intention is to allow Brazilian consumers
to use prepaid phone accounts for bill payments, remittances and
other domestic payments,” Gibb added.
The company is currently rolling out services
targeting Brazilian migrants in Japan and Portugal who want to
remit money to mobile phones owned by relatives in Brazil.
US-based online money transfer
specialist Xoom offers a website where US residents can remit money
abroad using a payment card or via an automated clearing house
transfer from a bank account. Recipients can pick up their cash at
an agent, have the money delivered to their home, or have the funds
deposited direct to a bank account.
“In the Philippines, we work with mobile
operator Globe to allow funds to be credited to an agent’s
cellphone account,” said Xoom CEO Julian King. “We then send a text
message to the agent to disburse the cash to the recipient. The
money is transferred from Xoom’s mobile account with Globe to the
agent’s account with the telco.”
The advantage of using mobile networks is that
the agent does not need an Internet connection or a landline, King
says. Also, instead of having to ring a call centre to get
authorization to pay the recipient, they just send a short message
service (SMS) authorisation code. This facility is particularly
useful when there are long lines of people queuing up to get their
King said Xoom is looking at offering similar
SMS-based services in Latin America, where currently all its
payouts use traditional cash pick-up.
“The benefit of using mobile networks for
transfers is the low cost, compared to using wire transfers, which
can cost $30 per transaction,” he stressed.