NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Wednesday, August 1, 2012

A recent wave of global and regional announcements regarding mobile wallets and payment systems has casual and close followers alike asking some the same questions.

What exactly are they talking about?

Whether the statements are promoting digital money, mobile payments, mobile banking, prepaid or a mobile wallet, one thing is certain: the lack of consistency in terminology and the vagueness typical of early product releases has made the task of distinguishing all the more difficult with each new announcement, confusing would-be industry participants and potential end-users. So, it would seem that some demystifying is in order:

Simply put, mobile wallets aim to create a phone-based equivalent of a physical wallet — a cloud and/or SIM-based collection of all the personal identification, financial and non-financial account information we might carry with us every day. The different money, payments and banking offerings refer mostly to the ability to purchase and perform other value-based transactions with a mobile handset — almost always a smartphone. These may work in concert with or independent of a so-called mobile wallet and may or may not have an associated physical card or a traditional deposit account. In addition, some of these are open- or closed-loop, meaning they can be used almost anywhere or with individual or select parties, respectively.

In our region, as in other emerging markets, these details are very important given the fact that more than 90% of mobile users are on prepaid plans — many of them unbanked — and use devices with varying features and capabilities to match their individual budgets and technical abilities.

Who are the key players?

As the late author and professor C.K. Prahalad informed us in his seminal book, The Fortune at the Bottom of the Pyramid, the affordability, accessibility and availability of each of these offerings depends on your income, where you live (or roam), and your device’s capabilities. Present examples include Google Wallet (closed-loop, U.S. only), Facebook Credit (closed-loop, global, proprietary currency), Apple’s Passbook (loyalty) and Safaricom’s M-Pesa (stored value, money transfer via SMS, Kenya).

In Latin America, to date we’ve seen the arrival of initiatives to improve mobile payment transactions and incorporate unbanked users such as Transfer in Mexico (Telmex with Citi/Banamex and Inbursa) and Wanda (MasterCard and Telefonica) in Argentina, LATODO and Plata (Servitebca with Interbank in Peru, and with Venezolano de Credito in Venezuela, respectively) Yellow Pepper in Haiti, and TPago in the Dominican Republic.

In short, these are a series of different, early-stage ventures comprised of some combination of telcos, acceptance networks, prepaid program managers, banks, technology companies and operating systems.