The mobile payments market in Latin America: what could it learn from Europe

In an interview with The Paypers held during the Moneyconf event in Madrid, Yellow Pepper’s CEO & co-founder Serge Elkiner shares insights on why Latin America is a fruitful market for payments service providers.

Yellow Pepper is a mobile banking and mobile payments company focused on Latin America. Some of their partners and clients include processors and acquirers: Diners Club in Ecuador, E-Global, which is owned by BBVA Bancomer, CITI Banamex and HSBC and services nearly two-thirds of Mexico’s 350,000 point-of-sale devices, also Evo Payments System, Elavon, and First Data in Mexico.

The company’s successful strategy relies on servicing local banks: from the 55 banks they work with, many of them are local: Banco de Pichincha in Ecuador, Banco de Credito in Peru, Scotiabank in different countries across Latin America, Davivienda, Grupo Aval in Colombia and Banamex in Mexico.

Yet, the company, which last year raised another USD 19 mln in series C funding bringing the total to USD 34 mln, also works with well-known brands such as KFC, McDonalds, Starbucks in Colombia.

What’s more, the CEO mentions that this August, they are going to officially launch in Mexico and afterwards in Peru, as well as in the Dominican Republic.

From sign up to transaction: how Yellow Pepper works

First of all, you need to have a debit card or a credit card. Afterwards, you download the app, which can be one of a retailer, of a bank, a white label app, or it can be a branded one from the company – Yellow Pepper has a smart wallet in Colombia and in Mexico called Yepex. Then you register, you scan the card through a manual input or through a scanner. Once the scanning is complete, you have to identify or authorize yourself as a user – the company has different methods of doing that, depending on which app and which channel you are using. Once you have registered your card, Yellow Pepper works with the bank to integrate all systems into the point of sales in those markets: Colombia, Ecuador, and Mexico.

So, basically the process is as follows - you go to a shop and you want to pay with your mobile phone: you open your app which generates a dynamic 6 digits PIN, you give that PIN to the cashier. She or he inserts it in their terminal or micro-terminal that is used today to swipe the credit card and then you get a phone confirmation that you’ve paid for the goods or services at that location.

According to Yellow Pepper’s own data, they currently serve five million customers and process over 30 million monthly transactions in mobile banking.

Mobile payments market in Latin America: what could it learn from Europe

Latin America, as Europe, consists of different countries each having its own adoption rates, regulatory challenges, but also opportunities. The heterogeneous aspect has been seen as an opportunity by European countries: the UK continued to be the leading market in 2015 with 46.9% of online transactions taking place on mobile. In other key markets, Spain and the Netherlands recorded 32% of online payments on mobile, followed by the US with 27%, Germany with 25%, and France with 23%.

Although in Latin America the industry is at the very early stages in mobile payments, it can learn from Europe and take advantage of the diversity. Serge Elkiner told The Paypers that “We [Yellow Pepper] are the first ones to launch in Colombia, Ecuador, and Mexico. I wouldn’t say that mobile payments are mainstream yet. Most of the users come from Colombia and Ecuador”. However, the industry sees more interest coming from banks and retailers to get into the mobile payments game. And for good reason – the mobile payments opportunity in Latin America is in the numbers: in Mexico, smartphone usage in the country is growing rapidly, up 40% in the second half of 2015 bringing the smartphone user base to more than 62 million devices, according to eMarketer. Brazil stands to a 29% penetration while Colombia to a 22% smartphone penetration and 10.5 million devices. What’s more, Colombian consumers are frequent users of m-commerce (26%) and POS (21%) mobile payments, shows MasterCard’s Mobile Payments Readiness Index. Some examples to exemplify the interest:

• Giant tech company Samsung which already has 42% market share in Brazil, according to Gartner, is placing all bets on its Pay service to draw in new users despite the countrys deepest recession in at least a century. It has announced the introduction of its mobile-payments app in Brazil for the Olympics Games in Rio de Janeiro.

• Apple has been rumoured to launch in Brazil since 2015. The Bank of Brazil, Bradesco, and Itaú are all in negotiations to support Apple Pay, according to Brazilian magazine Época Negócios (quoted by cultofmac.com). The report also notes that 80% of Brazil’s two largest payment terminal suppliers support NFC.

• The Visa payment ring is set to launch at the 2016 Olympic Games in Rio, Brazil for 45 athletes. A prototype of the device was shown off at an event in New York City. Using its Visa Token service, which replaces the attached cards sensitive payment information with a unique digital identifier, the ring can be used to process payments without exposing any account details in the transaction. When an NFC-ready payment terminal is prepared to accept a card, just make a fist and gently fist bump the terminal. The payment is accepted automatically from there as if you had just swiped your card.

Serge Elkiner adds that everything starts with trust and “even though is the very beginning, we see high growth as well as high demand from consumers, retailers and banks alike. First of all, consumers start to trust us, the mobile payments vendors, not just for the security of the transactions (because we tokenize all transactions thus offering a much higher security level) but also for the engagement and the ability to build added value for the services on top of the payment layer for both the retailers and the bank, that serves first to bring value to the consumers”.

The regulatory landscape in Latin America’s mobile payments industry

Elkiner pinpoints that “We don’t have a problem on the regulatory aspect because we’re using a card-based system. We are emulating a card, tokenizing it and then transferring the data through the same point of sale system, into the same processor, to the same authorizer, through the same acquiring bank. Nothing gets changed. The fees remain the same, the entire system too so the regulation remains the same. The person providing the system or the service is the bank or the retailer. Thus, from a regulatory standpoint, we are not changing anything we are using that`s already there.” Nonetheless, the regulators are embracing the evolution of technology and are helping as much as they can, showing high interest regarding the next generation of regulations.

About Mirela Amariei

Crafting large-scale industry reports, carrying out interviews and writing about innovation in payments and fintech are Mirela’s daily treats. As the Senior Editor at The Paypers, she speaks frequently with key thought leaders to identify trends and trendsetters. She can be reached at mirela@thepaypers.com via Linkedin and Twitter.

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