Digital wallets have become increasingly popular in many places, but Latin American providers have not yet figured out the right combination for their products
The terms “digital wallet” and “mobile wallet” are now so ubiquitous in the payments industry in Latin America that they have adopted a loose definition. What do digital wallets do? First of all, the term itself refers to dozens of products, most of which fall into one of three categories that have been established below for clarity’s sake under the umbrella term 'e-wallet':
#1: They Are Enabling the Wrong Types of Payments
Nearly every bank in the region is toiling to develop its own contactless mobile wallet for physical purchases. This is the wrong type of payment to enable. Competition from credit cards and cash is fierce; credit cards work well in Latin America and provide miles, points and interest-free installments. Cash is accepted everywhere and presents no risk of fraud. Without a compelling reason to use contactless POS technologies, consumers simply won’t.
The low penetration of NFC-enabled smartphones and POS terminals (save Brazil) is another problem; to cope, some e-wallets offer users a contactless-enabled sticker to adhere to the back of their smartphone–hardly an attractive look. Why would a shopper bumble around with a new app simply to make a payment she could do easily with cash?
The only reason is for the simple novelty of it. But in Latin America there is a serious demographic mismatch here. Contactless mobile wallets depend on credit cards and are thus available only to credit card holders, who tend to be older (30+ years). These consumers are less likely to adopt new technologies than younger ones. Young adults are the ones most excited about using their smartphone to make merchant payments; alas, in Latin America they are much less likely to own a credit card, as the chart below demonstrates.
#2: They Are Focusing on the Wrong Types of Customers
Over the past ten years, investment in e-wallets focused first on the unbanked and poor. This group is the least likely to adopt new payment technology even if they have the most critical need for it. The second wave of investment came in the form of contactless mobile payments that were aimed at affluent credit card holders. As discussed above, this demographic does not need or want a new way to pay.
Ironically, the demographic most likely to adopt mobile payments is that least attended to: the young, middle-class and under-banked consumers. This group is under 40 years old, probably has a bank account and definitely has a smartphone. But because they do not have credit cards, many digital wallets are futile to them. Until recently, stored-value wallets developed for the underbanked were created for feature phone users and marketed toward the rural, poor and excluded.
In some ways, Latin America is prime for the adoption of mobile payments, as demographic trends and smartphone penetration converge favorably. In Mexico, 18% of the population is aged 15-24, compared to 13% in the US and 16% worldwide. A solid 25% of its population is aged 15-40, prime smartphone usage age. Simultaneously, smartphone penetration across Latin America has reached 50%+, while credit card penetration is only around 30%. Here emerges a clear unmet need: a mobile payment option developed for smartphone holders that is not dependent upon a credit card. Some wallets are providing this option: Nequi in Colombia, Yape in Peru, BillMo in Mexico. These wallets store prepaid digital funds and/or otherwise enable payments via a bank account. However, this type of product is few and far between and only began appearing on the map in the past year.
#3: They Are Providing the Wrong (Or No) Incentives
Finally, e-wallet providers in Latin America have not solved customers’ daily problems. Banks and others must consider what Latin American consumers need in their day-to-day—what pain points do they experience in their daily lives that wallets could help solve?
Appealing to Latin Americans’ desire for credit is a surefire way to earn loyal customers. Miami-based mobile payments company YellowPepper understands this well and partnered with Banco Davivienda in Colombia to implement e-wallet payments in the Apple Store. Apple customers apply for a virtual credit card with the store cashier; if approved, a virtual MasterCard is issued and automatically connected to the customer’s Davivienda e-wallet. The customer then receives a text message containing a seven digit dynamic code, which he provides to the cashier, and the purchase is charged to the newly issued virtual card. The results of this pilot have been impressive: in the first month of launch, Davivienda issued more than 10,000 cards, with total monthly volume exceeding $10 million. This program has enabled thousands of Colombians with first-time credit and to access Apple products that would otherwise be out of reach.
Case studies such as this one are also rare in the region. More creative thinking about the practical needs and potential solutions for Latin American consumers is needed in the e-wallet space.
E-wallets in Latin America are still emergent and in an experimental phase. The region is entering into a demographic and technological era, however, which supports the adoption of e-wallets.
LatinAmerican Post | Lindsay Lehr