I’m just back from a trip to Brazil and while I was there, the government introduced long-awaited legislation on mobile payments. This is an important task as Brazil now has 265 million mobile subscribers – more than 1 per inhabitant. Needless to say, the machinations of politics kicked off immediately and there will undoubtedly be many amendments before the bills passes through Congress. Nevertheless, the core legislation presented by the government is worth noting.
First of all, the bill is not limited to mobile payments. It represents the latest in a series of payment system reforms in Brazil that will have significant impact on the overall financial services landscape.
The key provision of the bill is the definition of a new category of “payments institutions” that will fall under central bank supervision. This broad definition will encompass a range of providers, including mobile money providers (including Telco’s, but only if they are involved in the payment process), digital wallet providers and, significantly, card companies and merchant acquirers. These rules also apply to banks that want to offer mobile payments. This is a bold step that will significantly shape how and who can establish payments schemes. This provision follows the general direction that Europe has taken – a direction that the U.S. has not (yet) chosen to follow.
The bill also requires interoperability of payments schemes. Mobile payment interoperability is also a bold goal in a country where simple telephone interoperability doesn’t work that well: within Brazil it is costly to reach a mobile number on a carrier other than your own. Performance across carriers is also relevant for mobile payments. Case in point: a colleague in Brazil noted that it had taken five hours for his SMS to reach someone on another carrier. There are also many instances where people have multiple cell phones (or SIM cards) on different carriers to minimize costs. (This explains why there are more mobile subscribers than Brazilians.)
Jumping ahead to mobile, the delays between mobile operators might be okay for a P2P payment but certainly won’t make the cut for in-store transactions in Brazil or anywhere else in the world. Can mobile payments catalyze improvements in the quality and cost of cellular transmission? The issue of, “Shall I pay you with your digital wallet or mine?”, is another huge barrier. Let’s see if Brazil can achieve something that we are far from achieving here in the U.S. Even as it may take some time to achieve interoperability, digital wallets in Brazil will no doubt proliferate in Brazil as they have here in the U.S. and establishing a roadmap will be a key ingredient for success. Goooooooooool Brasil!
The Brazilian bill clearly states that one of its goals is financial inclusion. Although it does not go so far as to define funds stored on a mobile device as an account, it does require that the funds be maintained separately from the funds of the mobile payment provider. While Brazil has achieved a greater degree of bank account usage and financial inclusion than many other countries – ensuring that mobile payments are secure and accessible will go a long way to help the 45% of the population that still doesn’t have access to formal financial services.
We’ll be following this as it goes forward. The central bank has 180 days to provide the framework and rules to make all this happen. This will be especially timely for the first wave of mobile providers like Zuum, a partnership between MasterCard and Telefonica (called Vivo in Brazil), that was launched as a pilot within the past two weeks. Stay tuned …