By Jesus Luzardo, Executive Vice President of Sales, Utiba.

Mobile money deployments in Latin America have been delayed compared to Africa and Asia Pacific, and clearly it is not due to a lack of mobile phone penetration which in many countries is well over 100%. The delay is due in part to a lack of clear, regional regulatory and legal guidelines which are evolving in most of the countries in the region, but also to the differences in infrastructure and demographics. Specifically, banking service penetration in the region hovers around 40%, and more than 60% of the population lives in urban centers, close to banking facilities. Significant retail and distribution channels also exist throughout the region. So what do these demographic and infrastructural differences mean to the evolution of mobile money services?

First, the strength and development of banking institutions regionally means that regulators are more inclined to give a controlling role in mobile money services to financial institutions, even though the banking penetration is still low (below 40%) and the # of bank branches (including branches, ATMs & Non-Bank Correspondents) is below 11 in average per 100,000 inhabitants, which is well below developed markets where the average is above 30. Throughout the Latin America, we see significant trends toward the adoption of a bank-led regulatory model, unlike many other regions of the world which have allowed the Mobile Operators to offer mobile money services independently. This regulatory model forces alliances between Mobile Operators and Financial Institutions, which often do not necessarily share the same corporate objectives or culture. This may be seen as a reason for the delay in the launch of services in the region. A unique case (so far) of bank – led regulation is that of the Central Bank of Ecuador which plans to provide a single mobile wallet platform for the entire country taking an active role to accelerate financial inclusion, the process by which financial services are extended to the unbanked population.

Second, the existence of developed retail and distribution channels, formal and informal, point to the potential of third party service providers independently offering mobile money services. This model was successfully adopted in Vietnam by M-Service. M-service started as an operator agnostic electronic recharge provider and has since grown to become the country’s largest prepaid distributor, offering recharge of accounts for all seven mobile operators with over 80,000 points of service nationwide. M-service is now marketing its mobile commerce services under the name of momo which includes the purchase of game credits and utility bill payment. The company looks to do person to person money transfers once they have authorization from the State Bank of Vietnam. In Latin America, regional airtime distributor Movilway is similarly deploying electronic recharge and mobile commerce services throughout the region.

Regardless of the delay, we see mobile money services taking off within the region, with the most potential among the unbanked. To achieve success in this market segment, payment service providers (banks, mobile operators, or third party payment service providers) will have to create a compelling value proposition for end users, ultimately one that saves them money. Mobile money doesn’t compete with credit card services or other financial instruments, rather, it competes with cash. To convince a person of any socio-economic status to put hard cash into a mobile wallet, you need to provide a compelling reason why.

For instance, in the Philippines, the Rural Banking Association of the Philippines (RBAP) and Microenterprise Access to Banking Services (MABS) have been particularly successful in developing microfinance services on the G-Cash platform that provide real cost and time savings to the microenterprise clients that use them. G-Cash customers can use their mobile wallet to make microloan payments, pay bills, make purchases and send money to relatives and friends. They have successfully identified an end user “pain point” and solved it with mobile wallet services.

Mobile operators in Latin America appear to have honed in on the person to person money transfer service as a most compelling end user use case. Paraguay has served as a test bed for Luxembourg-based mobile operator Millicom with its Tigo Cash (Giros Tigo) mobile wallet system which it intends to expand to the rest of its Central and Latin American properties in 2011. Tigo Cash has primarily focused on domestic remittances as a particular pain point for customers in the region.

At the same time, there are several initiatives being brewed by governments in Latin America for social benefits disbursements using mobile money as a vehicle to do it effectively; these initiatives coupled with several initiatives from private micro-finance institutions that with the help of international organizations are planning to launch mobile micro-finance programs in countries like Peru, Colombia, Ecuador, Mexico, and Central America, will help to ‘kick start’ the loading of the wallet barrier, as well as providing a cost effective method to distribute these benefits and financial programs.

The next 18 months (2011/2012) promise to be the year of mobile money launches in Latin America, a year of catch up. The regulatory environment will continue to evolve and provide clearer commercial frameworks for services, commercial deployments will finally take place in multiple countries of the region and the unbanked may finally have access to this powerful means of financial inclusion.