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Latin America warms up to mobile payments

Technology marketers love to claim their new inventions will ‘revolutionise’ society. However, they never specify what sort of struggle to expect. Will the societal changes be like the Russian Revolution, with its long bloody conflict leading to a centralised economy and heavy-handed regulation? Or will the IT revolution be more like the US overthrow of British rule, which led to greater freedoms and economic prosperity?

Ask any ‘revolutionary’ vendor that question and they become baffled. It’s as if they’ve never thought to question the meaning of the expressions they employ and as if words, in the information society, have no importance.

However, a new study from Netherlands-headquartered payments company Adyen seems to indicate a new social dynamic being created by mobile commerce. If Adyen’s 3,500-strong study group is an accurate reflection of global trends, increasing proportions of online business are being conducted by handheld devices. These days 29% of all online commerce is transacted via mobile payments, with 62% of those purchases being made via mobile phones.

Among the mobile phone shoppers, a class system of sorts is emerging. Users of Apple’s iPhone make more expensive purchases than their Android using counterparts. The iPhone has surpassed the iPad as the most mobile ‘shop’ with the former used in 36% of purchases with the latter down to 28%. According to Adyen’s Mobile Payments Index, the average transaction value on an iPad is £75, while the ATVs for Androids and iPhones are £49 and £54 respectively. An Apple handset is clearly the high-end class of cyber-browsing.

“Businesses that classify themselves as premium brands should target this valuable demographic in particular,” says Roelant Prins, Adyen’s chief commercial officer.

Adyen mooted several explanations for these emerging class differences. Those who buy physical goods, for example, are more likely to use tablets, because the bigger screens give them a better view. These happen to be goods with a much higher value. Smartphones, on the other hand, are more likely to be party to smaller digital transactions, such as games, apps and music.

However, these differences exist globally, even in the emerging economies of Latin America and the Caribbean (LAC) which the World Bank has identified as an area of increasing financial inclusion. According to its recent Global Findex statistics, the proportion of adults with bank accounts increased from 39% to 51% between 2011 and 2014, as a result of mobile phone ownership.

Within LAC there is massive disparity, with 80% of people in Haiti and Nicaragua financially disenfranchised, while the unbanked in Brazil, Jamaica and Costa Rica now make up less than 35% of the population.

According to a GSMA study, Global Money for the Unbanked, policy makers and regulators in LAC have seized on the importance of technology in creating a more equal society. “They are recognising the valuable role of mobile operators in enhancing financial inclusion and gradually shifting towards frameworks that allow different business models to compete,” say report authors Mireya Almazán and Jennifer Frydrych.

Mobile money services allow the unbanked to use basic mobile phones to make and receive payments, says the report. These are a powerful tool for social revolution and granting financial access in developing markets.

There is no ‘one-size-fits-all’ commercial model for mobile money, so the report calls for an open and level playing field. Regulation must allow both bank and non-bank mobile money providers into the market if mobile money is to succeed.

They must be getting something right, says the report, as the contributions of banks and non-banks helped LAC emerge as a strong mobile money newcomer. Latin America and the Caribbean jointly have the fastest growth in new registered mobile money accounts in the world.

Nearly two-thirds of markets in Latin America and the Caribbean (LAC) have at least one live mobile money service, with a total of 37 mobile money services in 19 markets.  This includes seven new services launched in Brazil, Colombia, the Dominican Republic, Ecuador, Panama, and Peru since 2014. The GSMA estimates an additional 18 services will launch in LAC, which adds up to roughly 18% of all such planned mobile technology ‘revolutions’ globally.

Latin America remains an anomaly to online trade, with its burgeoning middle class which refuses to follow convention. It’s not just because the region has its own unique customs and cultural practices (as outlined here) but it also has its own challenges. Shipping is unreliable and consumers use banks and credit cards less often. Even when they do, there is a different payment culture. Adyen has worked to adapt the technology to the culture.

There still remains a mass demand for wider choices in quality goods.

Around 50 million Latin Americans joined the middle class between 2000 and 2010 (say World Bank figures) and around 30% of the Latin American population is classified as middle class. The growth is strongest in Brazil, where 35 million people have joined the bourgeoisie.

However, there is a lot of catching up to do as Latin America has the second lowest level of digital sales worldwide, surpassing only the Middle East and Africa.

Market analyst Forrester Research predicted that business-to-consumer ecommerce sales in Brazil will increase from $17.8 billion in 2014 to $40.8 billion in 2019. (Source: Latin America eCommerce Forecast, 2014 To 2019, report in 2015)

Brazil is the most mature ecommerce market in Latin America with a population of 202 million people (as of 2014) of which 62% are under 30, making it an ideal target market for mobile traders.

Argentina, the second largest market, has nearly doubled its online consumption (from 7.8 to 12.6 million between 2014 and 2015). By 2019 its online sales will be worth $8.3 billion (up from 2014’s total of $3.4 billion). Mexico has more online shoppers than Argentina, with 10.1 million in 2014, but they spend less ($2.8 billion in 2014, with projected sales of $6.7 billion in 2019.)

Chile and Colombia – the other main countries showing enthusiasm for ecommerce - are relatively slow to adopt digital buying. However, both have great potential, especially Chile, with its 17.4 million would-be consumers.

But the challenge is that e-commerce merchants haven’t created the alternative payment methods to help those without credit to join the economic revival.

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Nick Booth

Nick Booth worked in IT in the UK’s National Health Service, financial services and The Met Police, witnessing at first hand the disruptive effects of new technology. As a journalist and analyst, his mission is to stop history repeating itself.

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