LandscapeofVirtualMoneyinLatinAmerica

Trends,Opportunities, Risks

January2016

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Tellingthestory:Trendsinvirtualmoney

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ThecaseforfinancialinclusionandmobilemoneyGlobally, themobile phone isconsidered atoolforfinancialinclusion, butthepoolofLatAmunbankedmobile phoneusersmaybesmallerthanonceimagined

MarketBanked

population (mn)Creditordebit card

holders (mn)Mobilephone users

(mn)Unbankedmobilephone users(mn)

Uncardedmobilephone users(mn)

Brazil 108 94 147 39 53

Mexico 35 24 83 48 59

Colombia 14 11 34 20 23

Peru 6 5 21 15 16

Chile 9 8 13 4 5

Argentina 16 14 30 14 16

LatinAmerica 220 173 396 176 223

Sources:TheWorldBank,eMarketer,MasterCard,GSMA

Financialinclusiondata,2014

According to theGSMA,mobilemoneyusesacellphonetomaketransfersandpayments,isgearedtoward theunderbanked andmustmeetthe followingcriteria:1. Offeratleastoneofthefollowingservices:

§ Domesticorinternationalremittances§ Mobilepayments,includingutilitybillpayments

2. Bebasedonanetworkoftransactionalpointsoutsidebankbranches

§ Socialbenefitspayouts§ Paymentsatmerchants

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EnthusiasmformobilemoneyhassurgedinrecentyearsSpearheadedbythetelcos, investmentinmobilemoneyforfinancial inclusion hasremainedstrong

§ Therearecurrently37livemobilemoneyservicesinLatinAmericaandtheCaribbean.§ LatinAmericaexperienced50%growthinthenumberofmobilemoneyusersin2014,thehighestgrowthrateofany

world region.§ Sixcountrieshavemobilemoneyregulatoryframeworksandseveralothersarepursuingfinancialinclusion legislation

LatAmmobilemoneylaunches,2010-2015

2010

TchoTcho– HaitimPeso –NicaraguaTigoMoney – HondurasCuentaMóvil – Chile

2012

MiBillerteraMóvil– ArgentinaBilleteraMóvil– PeruTransfer – MexicoPadeMobile –MexicoTransferAval – Colombia

OrangemPeso– DominicanRepublicMovilCash– PanamaTuDineroMóvil– PeruPlataMóvil - Colombia

2011

Daviplata – ColombiaMovilwayeWallet– VenezuelaBancamigo – GuatemalaTigoMoney- Guatemala

2013

AhorroalaMano– ColombiaMeuDinheiro– BrazilZuum – BrazilEnvíosPersonal– ParaguayLajancash – Haiti

2014 2015

OlhaConta– BrazilTIMMultibankCaixa– BrazilDineroElectrónico– EcuadorBIM – PeruVIVA Solutions– Bolivia

Sources:GSMA,GSMAMobileMoneyDeploymentTracker

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Despiteconcertedefforts,MMhasnotyetreachedscaleConsiderable challengesremainforMMtobringvaluetobothusersandoperators

§ Despiteheavyinvestmentbytheregion’sbiggestplayers,mobilemoneyhasstillnotreachedscaleafter8+yearsinoperation.

§ Operatorsfacesignificantchallengesinkeepinguseraccountsactiveonceopened.

§ MostMMserviceshave<5%penetrationoftotalmobilesubscriptions.§ MMismostsuccessfulinsmallcountriessuchasHaiti,CentralAmerica

andParaguay.§ MMhasgainedalmostzerotraction inlargeeconomiesBrazilandMexico

50% 23% 14% 11% 2%

Airtimetop-up P2Ptransfer Bulkdisbursement Bill payment Merchantpayment

Transactiondiversificationremainslow,with73%oftransactionvolumeconcentrated inairtimetop-upsandP2Ppayments.

Mobilemoneypenetration,yearend2014

Scaledservices,yearend2014

Mobilemoneytransactionbreakdown,%oftotal volumetransacted,yearend2014

LatAmadultpopulation

TotalMMpenetration

460 mn15mn

RegisteredMMusers

ActiveMMusers*

6mn

3.3%

Only3outof37serviceshaveachieved1million+users

Sources:GSMA,CenterforFinancialInclusion,AMIinterviewsandanalysis*Active inthepast90days

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SmartphoneusersarealargerandmoreviableopportunityAmongLatAm’ssixlargestmarkets,smartphoneusersrepresent77%moreincomethanfeaturephoneusersand33%fewerpeople.

Market Incomecontrolledbytop40%(smartphone users),2015,bnUSD

Incomecontrolledbybottom60%(featurephone users),2015,bnUSD

Brazil $1,188 $612

Mexico $720 $442

Colombia $178 $96

Peru $101 $79

Chile $157 $83

Argentina $329 $250

Total $2,673 $1,562

30%

40%

50%

60%

70%

2015 2016 2017 2018 2019

ChileColombiaMexicoArgentinaLatinAmericaBrazilPeru

Smartphonepenetration,2015-2019CAGR:12%

Smartphonepenetration,2015-2019

Sources:TheWorldBank,eMarketer

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§ Launchofcard-on-filedigitalwallets§ Partnershipwithmerchantstodevelopmobileapps

ThemarketdemonstratesarecommitmenttotheaffluentBanks,cardnetworksandtechcompaniesareadjustingtheirfocus toprioritizesmartphoneholders

§ In2015,marketplayersinvestedinA)contactlessmobilepaymentsbydevelopingdigitalwalletsandnon-NFCtechnology;andB)enablingm-commercethroughcard-on-filewallets.

§ Mobilemoneyisstillapriorityincountrieswherethereisgovernmentsupportandmarketcollaboration.

Productfocusofmarketplayers,2015

Mostagile

Leastagile

Cardnetworks

§ Enablingcontactlessmobilepayments(NFCandnon-NFC)§ Developmentofwhitelabelmobilewallets§ Expansionofe-commercegatewayservices§ Developmentofloyaltyprogramsforbanksandmerchants§ Enablingintegratedin-apppayments

§ Partnershipstoenablecompanioncardmobilemoneyservices§ Enablingin-apppayments

§ Developmentofdigitalwalletsfore-commerceandphysicalpurchases§ Optimizingonlinebankingplatformsformobiledevices

Technologycompanies

Telcos

Banks

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Whatopportunitiesaremarketplayerspursuing?

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Product Country Launchdate Involvedentities Howitworks

BilleteraMóvil Colombia Q32015 Bancolombia,MasterCard ViaQRcode

AvalPay Colombia Q32015 GrupoAval, CredibanCoYellowPepper ViaQRcode

Colombia Q4 2015 BancoDavivienda,Citibank,CredibanCo, YellowPepper Sixdigitone-timepasscodes

YepexWallet Mexico 2015 YellowPepper, eGlobal,Banamex

NFC, BLE,QRcodes,sixdigitone-timepasscodes

BBVAWallet Mexico Q22015 BBVABancomer NFC, HostCardSimulation

PayClub Ecuador Q42015DinersClubofEcuador,

BancoPichincha,YellowPepper

Sixdigitone-timepasscodes

Samsung Pay Mexico,Colombia 2016 Samsung, Loopay MagneticSecureTransmission

ContactlessmobilepaymentsWithservices fortheunbanked stagnatedandunprofitable,mobile financialservices forsmartphoneholders areontherise

“Providingbankingservicestotheunbankedwasn'tpayingenoughforustosurvive,soforthetimebeingwe'veleftthatmarket.”- YellowPepper

Recentandupcominglaunches

§ 2015sawthelaunchofseveralmobilewalletsthatbuildonexistinginfrastructure(non-NFC),whichacceleratesrolloutandmakesitaffordabletoconsumersandmerchants.

§ OnlyBrazilhaswidespreadpenetrationofNFCterminals,andthenumberofNFCenabledsmartphones(mainlytheiPhone6)intheregionisstilllimited.

Sources:ElectronicPaymentsInternational

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M-commercedigitalwalletsWiththeonsetofm-commerce,companies areinvestingintechnologytocapturemarketshare

$1$3$4$5

$20

$47

$0.1$0.3$0.7$0.8$4$8

PeruColombiaMexicoArgentinaBrazilLatAm

E-commerce M-commerce

24%

60%

LatinAmerica

E-commerce

M-commerce

§ Lateonsetofmobilecommerceduetocustomerfearoffraud,clumsymobilesitesandlimitedcreditcardpenetrationhasdeterredpaymentcompaniesfromtakingm-commerceseriously.

§ Butmaturinginfrastructureandtechnology issettingthestageforhighm-commercegrowth.

§ Banksandcardnetworksarenowsettingtheirsightsonthedevelopmentandlaunchofm-commercedigitalwallets:

Digitalcommerce*,2015,USDbillions

Digitalcommercegrowth,2015-2016USDbillions

In2015,VisalaunchedVisaCheckout inColombiaandMexico.

In2015,VisaNetinPerupartneredwithEntelandothermerchantstodevelopcard-on-filemobileapps

Since2013, severaldigitalwalletshavelaunchedinBrazil,including:

Atakus

Sources:eMarketer,InternetRetailer, interviews,AMIanalysis

*Excludestravelandeventtickets

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LookingaheadProvidershaveformidablechallengestoovercomeforsmartphone-based mobile paymentstotakeoff

Contactlessmobilepayments M-commercedigitalwallets

Factorsforsuccess

§ Rapidgrowth ofsmartphonepenetration

§ Mostnewapplicationsbuildonexistinginfrastructure

§ Rapidgrowth ofsmartphonepenetration

§ Growingtimeconstraintsofthemiddleandupperclasses

Opportunities

§ Developmentofloyaltyprograms§ Developmentofprepaidcardsinlieuof

creditcards§ Cashondeliverye-commerce/phone

sales

§ Developmentofprepaidcardsfore-commerce

§ Rapidgrowthofemergingm-commercesegments,suchastaxis,telecom,andentertainment

Potential roadblocks § Lowcreditcardpenetration§ Are mobilepaymentsmoreconvenient

thantraditionalcreditcardpayments?

§ Securityconcerns§ Lowpenetrationofm-commerce sites

amongmerchants§ Lowcreditcardpenetration

Workstilltobedone

§ Intensivemarketingcampaignsbywalletproviderstoaffectachangeinbehavioramongconsumers

§ Continualmerchanttraining

§ Coordination betweenbanks,paymentgateways,processorsandmerchantstoimprovee-commerceconversionandauthorizationrates

§ Intensiveconsumereducationcampaignstoencouragewalletadoption

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Newpotentialformobilemoney

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RegionalOverviewMobilemoneyusageandgrowthpotentialvarieswidelybymarket

Mobilematurityin2016

Leadersinmobilemoneypenetration

Significantmobilemoneygrowthpotential

Limitedmobilemoneygrowthpotential

Group1:Leadersinmobilemoneypenetration

Haiti,ElSalvador,Honduras,Bolivia,

Paraguay

Mobilemoneyhaspenetrated7%+ofallmobilephonesubscriptions

Group2:Significantmobilemoneygrowthpotential

Brazil,Mexico,Colombia,Peru,

Ecuador,Guatemala

Large correspondentbanknetworks,favorablelegislation,highpenetrationofmobilephones, largeremittancemarket

Group3:Limitedmobilemoneygrowthpotential

Nicaragua,CostaRica,Panama,

Venezuela,Chile,Argentina,TheCaribbean

(exceptHaiti)

Limited/nocorrespondent banknetwork,unfavorablelegislation,nomobilemoneytraction

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Aselectionofliveservicesin2016Inmostcases,mobilemoneypenetrationremainsdisappointing

Country Service Partners Yearlaunched

#ofusers Mobilesubscriptions(2013)

Penetration

Bolivia TigoMoney Tigo 2012 700,000 (2014) 10,425,704 7%

Brazil MeuDinheiro Claro, Bradesco 2013 271,099,799

Brazil TIMMultibankCaixa TIM,MultibankCaixa,MasterCard 2015 271,099,799

Brazil Zuum Vivo,MasterCard 2013 384,000 (2015) 271,099,799 0.1%

Colombia Ahorro alaMano Claro, Tigo,BanColombia 2013 280,000 (2015) 50,295,114 1%

Colombia DaviPlata Tigo,Claro,DAVIVIENDA,Redeban 2011 2,000,000 (2014) 50,295,114 4%

Ecuador MobileMoneyPlatform Movistar,Claro,BancoCentral deEcuador 2015 45,670(2015) 17,541,754 0.3%

Guatemala TigoMoney Tigo 2011 250,000 21,716,357 1%

Haiti Tcho Tcho Digicel, Scotiabank,YellowPepper 2010 1,000,000 +(2011) 7,160,200 15%

Mexico Transfer Telcel,Banamex, Inbursa 2012 105,005,729

Paraguay TigoMoney Tigo,BancoContinental, ItaúUnibanco, VisionBanco 2008 1,200,000 (2015) 7,053,297 17%

Peru TuDineroMovil Movistar,MasterCard,NovoPayment 2014 29,793,297

Sources:GSMAMMUDeploymentTracker,UNData,Tigo,Bancolombia,Exponews,BancoCentraldeEcuador,Agrobanco,Telesemana,

Telesintese,Elsalvador.com,interviews

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Stepstocreateinteroperability

Theneedforinteroperability

Interoperability:EssentialtoscalingmobilemoneySuccess ofMMhasstalledduetoclosed-loop infrastructure.AregionaltrendtowardinteroperabilitymakesMMmoreviable.

§ Almostallmobilemoneyservicesintheregionare closed-loop,functionalacrossonlyoneMNOnetwork

§ UserscannotsendorreceivemoneyfromauseronadifferentMNOnetwork

§ Closed-loopseverelyreducesplatforms’utilitytousers

§ Non-interoperabilityisnotanobstaclewhenoneMNOhasmajoritymarketshare.

§ Whenamobilemoneyusercaninteractwithpeersandmerchantsonanymobilenetwork,theplatform’spotentialincreasesexponentially.

§ Whenmobilemoneycanbeusedanywhereforanything,itbecomesamoreviablereplacementforcash

“Mobilemoneywillonlybesuccessfulifpeopleconsideritto

beequivalenttocash.Fullinteroperabilityacrossbanksand

telcosmakesthispossible.”

–PagosDigitalesPeruanos

1.Anenablingmobilemoneylegalframeworkmustbeinplacetoa)incentcompaniestoissuemobilemoneyandb)protectconsumers.• CountrieswithMMregulatory

frameworkincludePeru,Bolivia,Paraguay,Brazil,NicaraguaandGuyana.

2.Alargeagentnetworkmustbeinplacetoa)maximizeMMutilityandb)evangelizeMMtoconsumers.

3.Awell-positionedindustryorganizationmusttakeastrongleadershiproletoorchestrateinteroperability.

Country #ofbankcorrespondents

Brazil 375,000

Colombia 42,000

Peru 30,000

Mexico ~30,000

Closedloopservices

Sources:GSMA.Pagos DigitalesPeruanos,BloombergBusinessWeek,FundacionCapital,CAF,interviews

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Mobilemoneycasestudy:Peru’sBIMPeruisrollingoutitsmuchanticipated,fully interoperablemobilemoneyplatform

APeruvianmobilemoneylaunchedinFebruary2016,enablingbanksandnon-bankentitiestoissuemobilemoney.

• Salarypayments• Politicalcampaigncontributions

• Integrationwithe-commercegateways• Socialbenefitpayouts

Sources:Gestión,PagosDigitalesPeruanos,interviews

WhatisBIM?

§ Chargeledby thePeruvianBankAssociation(ASBANC)§ Interoperable acrossthreetelcosand33financialinstitutions.Thefirstintheworldofitskind.§ Currentlyoperatinginpilotstagewith3,000users§ Issupportedbyanetworkof40,000+bankandnon-bankcorrespondents§ SoftwaredevelopedbyEricsson§ Paidforandsubsidizedbyparticipatingbanksandtelcos

BIMwill berolledoutinthreephases:

1PHASE Cash-in/cash-out,P2Ptransfers

andmobiletops-upswillbeenabled(Q12016) 2

PHASE BIMaccountswillbeinteroperablewithtraditionalbankaccounts,andmerchantpaymentsandbillpaywillbeenabled(~Q32016)

3PHASE Integrationwithpublic

transportation,B2Bapplications,internationalremittances(~Q12017)Inlate2016,BIMwillreleaseanRFPforthedevelopmentofaBIMsmartphoneapp.

Potentialfutureapplications

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BIMBestPracticesAsolid commitmenttofinancialinclusion andinspiring leadershiphasmadeBIMpossible

KeysuccessfactorsforthePeruvianBankAssociation:§ Progressivementality witheyesonthefuture§ Fearofcompetition fromMNOsandofbecoming

obsolete§ Exceptional leadershipwithanemphasis on

financial inclusion

§ Pressurefromparticipatingbanks§ Fearofapoorreputationfornotprioritizing

financial inclusion§ Acollaborativecultureamongbanksandtelcos§ Patience andlong-termcommitment fromall

involved

Willitsucceed?– Stillhighlyspeculative,butBIMhasseveralfactorsin itsfavor:• Oneconsistentmessageamongvariousentitieswill

facilitateuserregistration,educationanduse.• Alargeagentnetworkisalreadyinplace.

PotentialPainPoints• BIMisnotfree.The$0.15chargetoP2Pmayseem

steeptolow-incomeusers.• Itslow-techapplicationisuncomfortablefor

smartphoneholdersandmaydeterthemid- high-levelincomeusers

Sources:Gestión,ASBANC,interviews,AMIanalysis

Interoperability–Howdidtheydoit?

Long-termcommitment

§ AllfeerevenuewillflowtoPagosDigitalesPeruanos(companycreatedtomanage BIM)tocoverthecostoftheplatform.Bankswillnotearnfeerevenueuntiltheplatformreachesscale, infive+years

§ Banksunderstandthattherealopportunityliesineventualcross-sellingofpaymentcards, loansandotherbankingproductstoBIMusers.

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OpportunitiesgoingforwardBankshaveexcitingopportunities tocross-sell productstoMMusersbutfaceincreasedcompetition

Predictedchanges Potential winners Risks forincumbents

More mobilemoneyapplicationswillbecomeavailable

Consumers,merchants,telcos,banks

IfMM replacescardtransactions,cardnetworksandbankswillloseinterchangeandfeerevenue.

Non-bankentities willplugintoMMnetworks,increasingcompetitiontohouseMMaccountsandgainaccesstouserdata

Consumers,non-bankfinancialentities,technologycompanies

Banks willgoheadtoheadwithincomingplayersvyingformobilemoneyaccountsanduserdata.

Market playerswillhavecross-sellingopportunities

Banks,cardnetworks,techcompanies,telcos

New players,likelyagiletechcompanies,willbeginofferingcompetingproducts, i.e.companioncards,loans.

Costs tomerchantswillfall Merchants,consumersIfacceptingMMismoreconvenientandcosteffectiveformerchantsthancards,cardpayments coulddecline.

Correspondent banknetworkswillexpandoutsideurbanareas

Banks,correspondentbankadministrators,acquirers,cardnetworks

Expansionwillbecostlyforbanks.Cardnetworksmaybeexcluded fromtheprocess.

UnderinteroperableMMnetworks,newopportunitiesandrisksarise

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Conclusion

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Conclusions:Alongroadahead,fullofpotential

Providing financialservicestotheunbanked isacostlyendeavorrequiringacollectiveeffort.

Newinvestmentinmobilepaymentshasflowedawayfromtheunbankedtomiddle-class andaffluentsmartphoneusers.

Interoperabilityandbuilding onexistingpaymentinfrastructurearekeyfactorsforsuccess.

MobilepaymentsinLatinAmericaarestillemergent,nodefinitivemarketleaders.Thereisamplespacefornewplayerentry,productexplorationandinnovation.

Asfirst-to-marketplayersdothehardworkoflayinggroundwork andeducatingconsumers,newplayerswillenterthemarket.Competitionwillbecomeincreasinglyfierce.

Smartphone-based P2PpaymentshavenotyetarrivedinLatinAmerica.Theregioncouldthereforerepresenta)terrainripeforlocalinnovation; orb)thenextfrontierforestablishedP2Ppaymentproviders (Venmo, FacebookMessenger).

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AboutAMI

AMIisLatinAmerica’sleadingindependentmarketintelligence consultancy

Ourfoundingpartners helpedpioneerthefieldofmarketintelligence inLatinAmerica

Ourconsultants haveadvisedover½oftheregion’s100largeststrategic investorsoveraspanoftwodecades

AMIconsultantshaveconducted closeto2,000clientengagementsinLatinAmericasince1993

Ourconsultants haveworkedineverymarketinLatinAmerica

Ourholistic approachtomarketintelligence isunique.Wecombine marketresearch, competitive intelligence,political analysisandeconomic forecasting inour studies.

Fewothers dothesameinLatinAmericaLindsayLehr,SeniorDirector+1(305)873-4311llehr@americasmi.com