MOVEABLE MONEY:

It is not uncommon to see long lines of customers at Lima’s banks. Nor is it unusual for the average Peruvian to travel long distances to the nearest branch to pay bills or complete other basic transactions. Yet all of this may be about to change. In December 2012 the national Congress approved the Electronic Money Law, a first step towards mobile banking. While electronic money was not prohibited in Peru prior to the law’s passage, this step should help boost the development of a mobile banking system and provide users with an adequate degree of consumer protection. The next step will depend on the guidelines the Superintendency of Banking, Insurance and Private Pension Funds (Superintendencia de Banca Seguros y AFP, SBS), the sector’s regulator, released for the use of electronic money in October 2013. As the government and private players work to improve access to banking, mobile technology may be the key to introducing more Peruvians to the formal system.

Market

The geographic spread of banking in Peru is relatively limited, with only 65% of the country’s 1800 districts being served by some form of financial institution. By contrast, mobile phone service reaches 95% of all districts. Similarly, only 30% of the population turns to banks for loans, while 98% of Peruvians have a mobile phone. It is this gap that banking and telecoms firms, as well as specialised service providers, are looking to exploit.

One of the main advantages of mobile banking is that it allows customers to complete simple transactions using text messages, obviating the need to visit a branch or ATM. This makes the system especially appealing to poorer, rural customers who often have to travel long distances to the nearest bank, a fact that is not lost on policymakers. Indeed, during a January 2013 ceremony to mark the enactment of the electronic money regulation, President Ollanta Humala said the new framework “was designed to help the poor, who have little access to banks”.

Other individuals who might benefit include those who live in cities and have access to banks but want to send money to their families in rural areas. According to the SBS, mobile banking could significantly reduce or eliminate fees for these transactions, which vary between PEN4.50 ($1.69) and PEN350 ($132), depending on the amount being sent. The state could also benefit from lower costs by using this technology to deliver social programme payments or civil servant salaries. Other likely users include small businesses, which stand to gain from simplified payment processes. Miguel Arce, manager of innovation for distribution channels at Scotiabank Peru, told local press that he expects small shop owners to be among the earliest adopters of the technology. According to Arce, there are around $15bn in retail transactions each year in Peru, of which only 6% involve a bank. Some $10bn in cash passes through local grocery and hardware shops, he said, indicating opportunities for mobile banking. One factor that may encourage smaller businesses to adopt the new technology is that transactions will be exempt from sales taxes for three years.

How It Works

To bank by phone, a client first signs up with one of the electronic money companies ( empresa emisoras de dinero electrónica, EEDE), which are regulated and must have initial capital of least $100,000. When registering with an EEDE customers can link their savings account with their mobile phone or purchase a prepaid card, which does not require a bank account. To make payments, a customer can transfer money from a savings account to a phone or from a prepaid card to a phone. In fact, for customers with prepaid cards, a phone is not necessary, and they can choose to use the prepaid cards to make a payment to a small retailer or utility company, or withdraw cash. Mobile banking platforms are being designed to work on all types of phones, but specialised applications for smartphones are expected to appear on the market in the future.

The funds are not physically linked to the device, so theft is less of a concern, and an account cannot be accessed without a user’s password. In addition, the SBS has taken steps to prevent the use of the mobile banking system for money laundering or financing terrorism. Transactions must be in nuevos soles and cannot exceed PEN3700 ($1393) in a single month.

New Players

Both mobile phone service providers and banks are moving quickly to enter this market. Spanish telecoms company Telefónica and MasterCard have joined together to launch Wanda, which will be available in the 12 Latin American countries where Telefónica’s Movistar brand is present. In Peru, the joint venture partners with Banco de Crédito del Perú (BCP). After registering with Wanda, users will be able to load money onto their mobile accounts at any BCP agent (including the bank’s network of third-party or correspondent agencies) or Movistar agent.

Similarly, Interbank, the fourth-largest bank in Peru, has partnered with Novopayment, a regional leader in prepaid card services, to launch Servitebca, an electronic banking service. In April 2012 Servitebca announced the launch of a prepaid card, LATODO, which can be bought or reloaded at various service points in pharmacies or supermarkets, as well as with Interbank agents. Users are able to verify their incomes to potential creditors by showing LATODO transaction records. Scotiabank Peru, the country’s third-largest bank, is working with YellowPepper, a leader in mobile financial services in Latin America, to create service points throughout the country for the bank’s own version of the mobile wallet. BBVA Continental, Peru’s second-largest bank, is also thought to be working on developing a mobile platform.

Other entrants are more specialised firms that do not necessarily qualify as banks. GloboKasNet, for example, was founded in Peru in 2007 and uses the Claro and Movistar phone networks to perform simple transactions – such as bill payments or deposits – for clients who have accounts at various banks and microfinance institutions, including Mibanco, BBVA Continental and Caja Nuestra Gente. While GloboKasNet clients must visit agents to perform transactions, the network is innovative in that it relies on mobile technology and is able to reach more banking customers closer to their homes.

Devil In The Detail

One issue that has not yet been addressed is whether experts in handling electronic money will be considered financial institutions for regulatory purposes. At present, it appears unlikely that EEDEs will be able to offer loans to customers, but it is unclear how the regulatory framework may change over time. Indeed, many of the details regarding this evolving market are still unknown, although the release of the electronic money regulations, expected in 2013, will help to clear up any lingering vagaries.

Still, success is not a given. While mobile banking has proven successful in developing countries around the world, from Kenya to Paraguay, it will be up to leaders from the Peruvian financial system to adapt mobile banking services to meet local needs.