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 questions.

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, respectively.

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 value.

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 customers.

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 one.

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.