In late 2013 the Brazilian government established regulations directed at clarifying expectations for the emerging mobile payment market. By creating a clear set of standards for the mobile payment players, the Central Bank has increased the likelihood of greater adoption and access to mobile financial services for all consumers. This positive regulatory development is one component of why Euromonitor International expects mobile commerce to triple in Brazil over the next five years. The leading telecommunication companies have entered into ventures with the leading Brazilian issuers, merchant acquirers, and card payment networks to launch pilot projects throughout the country. The regulation named the Central Bank responsible for oversight of mobile commerce, created a new classification mobile money companies termed ‘payment institutions’ which will have fewer capital restrictions but similar protections to traditional financial institutions, and stated the long-term goal of interoperability between all competing platforms. Perhaps most importantly, the rules have been set for those involved in mobile money which reduces the uncertainty and to some degree protects investment in the space. Creating a friendlier regulatory environment for mobile money services should eventually translate to a viable financial service option for the 62 million Brazilian consumers over fifteen years old that aren’t banked but are likely to have a mobile device.
Brazil Banked Population, Household Possession of a Mobile Phone, and M-Commerce Value 2009-13
A couple factors motivated regulators to tackle the electronic money market in Brazil: increasing financial inclusion, consumer complaints of fraud from an unregulated market, reduce the cost of maintaining paper money for the government and provide a clear environment for mobile commerce. The regulatory framework established allows non-bank entities to issue electronic money, and does not treat money loaded as deposits which have far greater regulatory restrictions. The rule also grants non-bank entities access to the domestic processing network and settlement at the Central Bank if they apply for a payment institution license. The government regulations also address the potential for interoperability among platforms. Although the regulation stopped short of mandating interoperability, it listed it as a future priority. Moving this portion of the regulation into practice may prove difficult given the already developing four different money platforms backed by the largest telecommunication companies: Vivo, TIM, Claro and Oi. The immediate move to not require interoperability is to not restrict a market that is still very much in the development phase. Each platform that receives a license as a financial payment institution must outline a roadmap on how it intends to incorporate to the wider financial system down the road. Creating a mobile money platform that allows users to transfer to any competing system at a low cost would reduce the primary barrier to consumer adoption.
The Brazilian approach to mobile commerce regulation mirrors that of Peru in Latin America and contrasts the current environment in the US. The lack of interoperability of mobile payment platforms in the US has largely limited its adoption. In the US the divisions are primarily characterized by industry segment: telecommunication, technology, financial institution or merchant. With the current mobile money platforms in Brazil: Vivo and MasterCard are behind the Zuum platform; ‘Oi Cantera’ is composed of phone network Oi, Banco do Brasil and network acquirer Cielo; ‘Meu Dinheiro Claro’ was formed from phone network Claro and Bradesco Bank; and phone network TIM has partnered with MasterCard and bank CEF. The more collaborative nature of the mobile commerce projects in Brazil will have a greater chance of consumer adoption and drive more innovation in the space than had each entity established as a separate platform. The participation of banks in the program — aimed at reducing the cost of banking — suggests the solution has the potential to rapidly change the banking and financial service environment in the country.
Measuring the Potential
The possession rate of mobile phones by households in Brazil reached 82.5%, a four percentage point increase over five years earlier. Additionally, 93% of mobile phones are projected to be smartphones in 2017, greatly increasing the available functionality. With an already competitive mobile environment, platforms will continue to increase incentives to sign up consumers and keep the cost of mobile money transfers low. Another motivation for traditional financial institutions to participate and partner with third parties is the long-term potential. The system of transferring money and paying for goods and services through mobile devices could be the first step in formally banking millions of consumers. Once basic financial services are adopted, consumers will be in a better position to utilize other products and services that the electronic money platforms do not have the regulatory permission to offer. In Latin American markets with a higher rural population than Brazil, financial institutions have used mobile money platforms to overcome the obstacle of maintaining a retail banking branch network. Banks in Brazil may begin to use the tool to consolidate its urban banking centers to lower operating cost.
Brazil Non-Store, Internet and M-Commerce Retail Value 2013-2018
Euromonitor International projects the Brazilian m-commerce market to reach US$1.8 billion by 2018 while total internet retailing is expected be US$26.8 billion, or 10% of total retail value. The portion of internet retailing not made on a mobile device, and other non-store purchases are likely to become an opportunity for mobile payment platforms. The long-term prospect of becoming a leading payment platform is likely to appeal to a range of companies across industries. The positive regulation implemented by the Brazilian government may be a large reason why innovation has taken place to begin with, but sustained investment in consumer education by financial institutions will determine the longer term adoption rate. With a more level playing field of non-bank entities and traditional retail banks there is a far greater chance of success.