In ‘War against Cash,’ MasterCard Takes Fight to Brazil with New Mobile Service (December 2012)

By Adam Perrotta, Assistant Editor

When MasterCard and global mobile carrier Telefónica joined forces to bring mobile financial services to 12 South American countries in early 2011, Richard Hartzell, president, Latin American and the Caribbean, MasterCard, said the initiative would help arm the card network with “the right artillery to strengthen our war on cash.” In late November, the duo aimed its latest salvo, a new mobile-based prepaid solution for underbanked customers in Brazil. While the cash-dependent underbanked population might seem like tough ground on which to wage the battle against cash, MasterCard is counting on a few secret weapons—Telefónica’s existing customer base and an overlap between cash-dependent consumers and cash-dependent merchants among them—to help it gain victory, according to industry observers.

The Brazilian mobile solution, which has yet to be named, will be the first product launched by Mobile Finance Solutions (MFS), a new company created by MasterCard and Telefónica. Largely targeted at Telefónica’s Brazilian customers who have a mobile phone but no bank account, the system will enable users to set up a prepaid account accessible via mobile phone or physical prepaid card. Accounts will be reloadable with cash at mobile phone top-up stations in locations such as supermarkets and newsstands, and users also will be able to make P2P money transfers to others enrolled in the program. The product is set to launch in April of 2013, with initial rollout planned for five cities around São Paulo. MasterCard said the initiative will expand to additional cities later in the year, and will be available Brazil-wide sometime during 2014.

Telefónica already has been using the technology to top-up mobile phones since October 2011, and the company says it gets approximately 7 million accesses per month for the service. Since announcing their partnership in South America almost two years ago, MasterCard and Telefónica have implemented mobile payment services in Argentina and Peru, though the Brazil program is the first to include a companion prepaid card, according to MasterCard. And the Brazilian market offers some very promising demographics; 52.6 percent of the nation’s 198 million consumers are underbanked, according to a study by MasterCard and Euromonitor. Meanwhile, 63.4 percent of the county’s population owns a mobile phone, a number projected to grow to 72.9 percent by 2015.

Getting Merchants on Board 

While the nation’s favorable demographics certainly can’t hurt, the ultimate success of the program in Brazil could depend on MFS’s ability to get local merchants on board, Rick Oglesby, senior analyst with Aite Group, tells Paybefore. “Not only does this make sense from the perspective of extending the reach of financial services to unbanked consumers,” he says, “but many of these same unbanked consumers are also cash-only accepting merchants. In many markets it’s possible to grow payment acceptance via mobile device by signing up these business owners for mobile financial services.”

Oglesby notes that mobile payment providers can capitalize on this overlap between consumers and merchants to accelerate acceptance of non-cash payment methods like mobile. Such was the case in Kenya, where pioneering mobile money service M-PESA has met with rousing success since its 2007 introduction, now processing more transactions within Kenya each year than Western Union does globally, according to the International Monetary Fund. “If [mobile payments providers] can convert the consumer to mobile, they can convert the merchants too,” Oglesby suggests.

In fact, Oglesby says, underbanked Brazilians’ lack of previous access to non-cash payments in some ways makes it easier to introduce a new payment method. “In many developing markets, the delivery of financial services via the mobile device can take off very quickly, as it provides financial services to people who hadn’t had easy access to them before,” he says. “Offering something for the first time is different than getting customers that already have [electronic payment methods] to change to something new.”

In sparking adoption of the program, MFS also is likely to find an ally in the Brazilian government, which has been making efforts to spur the provision of payment services to the nation’s unbanked and underbanked through mobile phones. The country’s central bank is currently devising a proposal for new payment industry regulations that would encourage development of new technologies and spur nonfinancial companies to begin providing payment services to help lower transaction costs and make payments more convenient for millions of Brazil’s citizens.