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Latin America Telecom Insider / Vol. 2, No 9, Edition 11 - Mobile Remittances: Network Operators Look to Cash In on a $60 Billion Market
Pyramid Research, Inc, November 2010, Pages: 13
As mobile penetration in Latin America nears 100 percent, mobile remittance solutions represent a large opportunity for mobile operators in Latin America to generate incremental revenues and reduce churn, according to this new report.
Mobile Remittances: Network Operators Look to Cash In On a $60 Billion Market highlights why remittances represent a large opportunity for mobile operators, but require a significant paradigm shift in order to be fully realized. It also reviews the features that a mobile remittance service must include to be competitive, the current competition and why it will be a steep challenge to overcome, and the additional benefits of having such an offering in the marketplace.
Due to the significant immigration to the US and Europe over the last 20 years, Latin America depends on family remittances to sustain local consumption. "This has created a virtual bridge of capital from the host countries to Latin America, and in some cases the flows exceed 10 percent of nominal GDP. The flow of remittances has dramatically changed the economic structure of certain countries that rely heavily on the capital sent by these workers," says Jose Magana, Senior Analyst at Pyramid.
Pan-regional operator Telefonica utilized remittances as a growth engine to help the company quickly recover from the global economic slowdown. "Mobile operators are well-positioned to benefit from any service that requires access to users, since almost 100 percent of the population is covered by mobile networks," notes Magana.
"With an average banking penetration of 50 percent, and the advantage of an already-developed infrastructure, it is obvious that mobile players have first mover advantage over any other industry to provide a variety of additional services, including mobile remittances," indicates Magana. In addition, slowness in response from operators risks them being left out of the value chain or playing a low-value role in the equation, similar to what appears to be happening in the content and mobile advertising businesses.
- Remittances represent a very large portion of the nominal GDP in Latin America and they are mostly conducted through formal channels. Costs have been steadily declining over the last few years. With an average remittance of around $350, the expected cost of this transaction is between $10 and $12.
- Mobile operators must move quickly to participate in this market. Not only are ARPS flat or declining, but mobile penetration has approached 100% in the region.
- The value chain of a mobile remittance service is still not clear and may depend upon the partnerships among different players of the market. For the particular case of mobile operators, it is clear that their role is no longer to go it alone and they must consider other partnerships with banks, payment companies, vendors or software developers in order to avoid being left behind.
MOBILE FAMILY REMITTANCES
A. A viable mobile remittance solution must be cheaper and more convenient than current alternatives
B. Revenue from remittances must be incremental to airtime
C. Mobile operators need to focus on improving operational efficiencies since mobile penetration is close to 100%
CASE STUDY: RegaloCard puts the sender of remittances in control of how the money is spent
CASE STUDY: Banco de Chile and Entel prove that banks and mobile operators can partner to leverage their respective expertise
Table of Exhibits
Exhibit 1: Family remittances vs. mobile revenues in Latin America, 2006-2009
Exhibit 2: Consumer to consumer transactions per quarter, 2006-2010
Exhibit 3: Fees charged for remittances by Xoom.com and Western Union from the US to El Salvador, 2010
Exhibit 4: Aggregate mobile ARPS in Latin America, 2006-2015
Exhibit 5: Average churn rate versus market share for America Movil in selected markets, 2010
Exhibit 6: Sample of merchants accepting RegaloCard in Latin America
Exhibit 7: Marketing material for Cuenta Movil
Latin America depends on family remittances to sustain local consumption. The heavy flow of immigrants to the US and Europe over the last twenty years created a virtual bridge of capital from the host countries to Latin America, and in some cases the flows exceed 10% of nominal GDP. In addition, this transfer of money has been a very profitable industry for companies, such as Western Union, and to local banks as well. The flow of remittances has dramatically changed the economic structure of certain countries that rely heavily on the capital sent by these workers. El Salvador, for example, dollarized its economy in 2001 because the US dollars circulating were enough to cover their monetary base.
In 2009, the flow of family remittances to Latin America totaled $58.8bn, a decline from US$69.9bn in 2008 due to the financial crisis. However, the size of the flow is as large as the total mobile revenues generated in 2009 and will likely stabilize as the developed economies regain growth. We believe that remittances represent a large opportunity for mobile operators in Latin America to generate incremental revenues and reduce churn.
This Insider highlights why remittances represent a large opportunity for mobile operators, but require a significant paradigm shift in order to be fully realized. It reviews the features that a mobile remittance service must include to be competitive, the current competition and why it will be a steep challenge to overcome, and the additional benefits of having such an offering in the marketplace.
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-Banco de Chile