MasterCard

Media Relations: Brian Gendron
brian_gendron@mastercard.com
914-249-1284

Press Release. SINGAPORE–(Marketwire – Feb 22, 2012)

18 months ago, we created a new business within Utiba called Converging Payments. This week marks a critical milestone as we publicly launch this strategy with the formal announcement of our partnership with MasterCard and participation in their Mobile Money Partnership, for which Utiba is the founding member.

T*his is the first part of our Converging Payments strategy and it calls for the intersection of mobile wallet networks with card based payment networks. Through this joint initiative with MasterCard we are addressing one of the most important barriers to growth of mobile financial services – that is the lack of ‘openness’.

What exactly does that mean? Early mobile financial services have provided consumers with basic mobile wallet and bank account services, however confined to transactions within a limited network or ecosystem, for which they were sometimes referred to as a “closed- loop”. Now mobile wallet holders throughout the emerging markets will be able to link a prepaid, debit or even credit card to their balance held in their mobile wallets. With this card, virtual or physical, they will be able to make purchases in the global acceptance network of MasterCard and on the Internet. Global payment networks are considered “open loop” for their near ubiquitous nature and interoperability.

In addition a new breed of ‘virtual’ merchants will be able to join the open loop ecosystem and accept card based payments – without needing to have a POS terminal.

Now the mobile wallet holder in Ghana, who previously didn’t have access to a bank account, will be able to buy goods in a retail store, on the Internet, or from a virtual merchant and take cash out at an ATM, both locally and abroad. For someone who previously only made cash transactions, this opens a world of possibilities, indeed it allows participation in the global economy. For this reason we consider Converging Payments the next step in Financial Inclusion.

Converging Payments will bring a next generation of more sophisticated mobile financial products and services to consumers in emerging markets; widespread adoption will be fueled by investment by payment industry players such as MasterCard, and the advent and rapid penetration of low cost smartphones.

Under the MasterCard partnership, Utiba will bring three new capabilities to our mobile wallet and banking customers,

1. ‘Issue’ prepaid companion cards against the mobile money (wallet / bank) account, enabling consumers to make payments from their mobile money account either physically at merchants where MasterCard is accepted, or virtually- for example on e-Commerce sites.
2. Enable consumers to initiate face-to-face or remote payments using their mobile phone at merchants that do not have traditional POS acceptance device.
3. Equip their agents / retailers to ‘acquire’ card initiated payments from other issuers.

In this first stage and with the MasterCard announcement we are initially focusing on interconnection between the mobile money platforms and global payments networks. However, we are also working diligently to add capabilities to our product and services offering that will allow ever more sophisticated financial products and services to be brought to the emerging markets, supported by developed world banking and payments infrastructure. This includes banking products such as savings and loan accounts, plus the credit scoring, fraud management, business analytics to support this model. Naturally, stronger authentication and security will be required to wrap around this.

In parallel with these initiatives we continue to work on our strategies to link global e-Commerce, social, and gaming merchants into the converging payments eco-system, and the development of sophisticated ‘tools’ for agent / retailer networks to provide more service rich and deeper distribution. More on this later.

Financial services company Western Union, and Malagasy telecommunications company Telma have collaborated to launch of an international mobile money transfer service. The cooperation will allow Malagasy citizens to use Western Union’s international money transfer service using mobile telephones. It will be possible to send funds to all MVola subscribers in Madagascar, and recipients in Madagascar will receive money from overseas directly on their mobile telephone. MVola provides users with a variety of services in addition to sending money by mobile telephone. These services include shopping, paying bills and withdrawing money from cash outlets.

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.