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The opportunity for MVT clearly varies market to market. In our second piece we take a look inside one of the less examined locations globally, Argentina for a southern hemisphere perspective. For starters, though, we are on well-tread ground, examining how MVT in Kenya is extending into other financial services areas - in this case, M-Kesho the micro-insurance product counterpart to M-PESA.
Mondato is at the convergence of the public and private sectors where financial, mobile, and online value transfers (money, airtime, bill payments) meet.
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In this issue:
A new world of financial service options may have opened in Kenya, bringing intelligent business inputs and creating personal credit metrics where none have existed before.
Argentina - MVT Opportunities Update
Mobile value transfer (MVT) has growth potential in Argentina, the third largest economy in Latin America, due to its favorable demographic and economic conditions. However, unless the regulatory framework changes there, MVT will not take off on a large scale.
The Changing Face of Micro-Insurance: M-Kesho
Micro-insurance, the provision of affordable insurance to the poor, could well be a key milestone in the fight against poverty, as insurance achieved through public action and appropriately developed private mechanisms has fundamentally changed the lives of poor people in richer economies. Mobile financial services will bring a whole new market for this service; it is already happening with the launch of M-Kesho.
The majority of the world’s population (about four billion people) is excluded from full participation in developed economies. They lack access to adequate risk-management tools, and are vulnerable to fall back into poverty in times of hardship. Micro-insurance, which has become increasingly recognized as a valuable tool in economic development, can help stabilise income levels, soften the blow of natural catastrophes, enable low-income individuals to take the risk of starting businesses, and make lenders more willing to lend to the poor. It is seen as a solution to help people in emerging markets afford insurance from which they would ordinarily be excluded, and is now one of the world’s most demanded financial services.
In a recent CEO Panel at the International Insurance Society (IIS) Seminar, José Manuel Martínez, Chairman of MAPFRE, Spain’s largest insurance group, highlighted the increasing role of emerging markets to the insurance industry. He stated that insurance is a crucial component of worldwide economic development, providing more than 7% of the world’s GDP. It contributes materially to economic growth by improving the investment climate and promoting a more efficient mix of activities than would be undertaken in the absence of risk management instruments. Growth of insurance in the developing world is 21%, compared with 1.4% in the developed world. This is fostered by a number of factors, one being the exciting innovation happening through mobile phones. As part of the advancement of mobile access and usage, new forays into mobile micro-savings, micro-credit, and micro-insurance are emerging... services that were more traditionally provided by microfinance institutions.
M-PESA, a successful mobile payments service launched in Kenya in 2007, allows it’s over 10-million users to store, withdraw and transfer money using mobile phones. Earlier this year, Safaricom-run M-PESA joined with Equity Bank to launch M-Kesho, a co-branded suite of financial products that is built upon the M-PESA service. While the core product is a savings account, account holders can also tap into loan and insurance facilities.
By using a history of M-PESA transactions, Safaricom is able to construct a basic credit profile of each user. Borrowers are able to apply for loans via mobile phones and receive notifications within minutes. Qualified borrowers receive the money on their phones, which can be withdrawn from the nearest M-PESA agent, and repaid through M-Kesho. Like existing M-PESA accounts, the savings account has no account opening fees, minimum balances, or monthly charges. Unlike M-PESA accounts, M-Kesho pays interest.
M-Kesho has opened a new frontier to increase penetration of banking and insurance services as the huge unbanked population that has access to the revolutionary mobile money transfer service is being tapped into. Microfinance institutions are taking advantage of these technological advancements to reach the mass market. Insurers such as Coopertative Insurance Company (CIC), have partnered with microfinancers to offer composite insurance products in rural areas by utilizing mobile money transfer systems to collect monthly premiums. Commercial banks are also exploring this new scene as they seek partnerships with telecoms in order to expand their range of services.
The merging of financial services and telecommunications lowers the barrier to entry into the formal financial sector. Furthermore, greater access to financial services and micro-insurance offers significant economic development prospects and ensures greater stability of the poor. The US has even expressed interest in importing the mobile money transfer system from Kenya and incorporating it into their national payment system. [1] Mobile platforms, as a conduit to extending financial services, are here to stay.
Argentina's MVT Opportunities - Is the glass half full or...?
A climate including some favorable demographic and economic conditions makes Argentina seem a better candidate for MVT than its scores show. Yet MVT on any large scale is hamstrung by the regulatory framework. This is why Argentina is ranked only 12 th in the Americas region in Mondato’s Global MVT Index for 2010.
Mobile Telecommunications Sector
There were 46.5M mobile phone subscribers in 2008, for a 117% mobile phone penetration rate. Three GSM mobile network operators (MNOs) work in Argentina: Movistar, Claro, and Telecom Personal; each holding about 30% market share and all three offering 3G services. Nextel, a fourth MNO, using Integrated Digital Enhanced Network (iDEN), has about 2% of the market.
Urbanization and Poverty
The vast majority, 92% of Argentina’s 40M population, live in urban areas; and a third of the total urban population resides in the greater metropolitan area of Buenos Aires. Relatively few Argentineans (14%) live below the national poverty line. Plan Familias, the government’s conditional cash transfer program to provide economic support to poor people, distributes funds to 1.3M families across the country every month.
Banking Sector
Only 28% of Argentineans have access to financial service. There are 68 banks and their coverage is not very good, especially compared to other countries in the region. There are only 1.46 commercial bank branches per 1,000 km2. However this number does not mean much due to Argentina’s size (the distance from the northern-most to the southern-most point in the country is equivalent to the distance from Moscow to Lisbon). Looking at the number of commercial branches per 100,000 adults is more appropriate and is comparable to Brazil and almost double that of South Africa. (See chart.) There is considerable room remaining for improvement compared to developed countries.
Geographic distribution of ATMs is similarly scant. But when examined as ATMs per 100,000 adults, the figures are much lower for Argentina than its peers, e.g., on third of Brazil’s ATM penetration per adult.
| Indicator (2009) |
Argentina |
Brazil |
USA |
Spain |
South Africa |
| Number of commercial bank branches per 1,000 km2 |
1.46 |
2.38
|
9.58
|
30.05 |
2.25
|
| Number of commercial branches per 100,000 adults |
13.42 |
14.24 |
36.27
|
38.59
|
8.10
|
| Number of ATMs per 1000 km2 |
4.06 |
19.36 |
46.39 |
120.52 |
14.55 |
| Number of ATMs per 100,000 adults |
37.38 |
115.86 |
175.69 |
154.80 |
52.41 |
Source: IMF
There is no specific regulation to support mobile payments, which discourages MVT development. Currently, only banks and cooperatives can take deposits and it is not clear whether nonbanks can store e-money. M-wallets or pre-paid cards, not linked to a bank account, have not taken off due to the lack of relevant regulation. The central bank however is drafting a regulation to “allow banks to use agents to deliver financial services through third-party establishments.” [1] Another regulatory problem in the country is that there is a tax on bank transactions Impuesto al Cheque, which could create problems if future MVT regulation allows for only bank account linked m-wallets.
Existing MVT
Due to the current realties in the country, most banks have mobile banking but it is just a value-added service for the banked. For a smaller subset of these banked, Tarjeta Naranja, Argentina’s biggest credit card issuer [2], launched its mobile payments service called NaranjaMo in collaboration with Movistar (Telefonica). Users can purchase goods and pay bills using their mobile phones. The new service helped Tarjeta Naranja boost sales by 25% in 2009. [3] As an additive MVT service this is a step forward, but it leaves much to be explored in MVT for the financially un- or underserved.
Options for Expansion
Under the current regulatory regime, some person-to-business (P2B) and government-to-person payments (G2P) could grow in Argentina: P2B due to high urbanization and levels of economic development; G2P due to the existing government assistance program. If regulation to address the specifics of MVT were to come to Argentina, the potential would increase dramatically for new implementations to take root there.
[1]CGAP Update on regulation of Branchless Banking in Argentina (January 2010)
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