Anticipated Demand for Prepaid Cards among Latin America Unbanked

Paynews.com

Jun 17 2008

By 2015, 324 million unbanked Latin American consumers could have general-purpose prepaid cards, according to a study by NovoPayment.

The Miami, Florida- and Caracas, Venezuela-based firm develops prepaid card programs for the unbanked in Latin America.

NovoPayment says that by 2015, annual general-purpose prepaid card spending by unbanked Latin American consumers could reach US$214 billion a year. Prepaid cards will bring access to point-of-sale, ATM, mobile and online card transactions to consumers who today rely almost exclusively on cash, NovoPayment says.

The study by NovoPayments covers 15 countries across Latin America including Argentina, Brazil, Chile, Colombia, Guatemala, and Venezuela. NovoPayment says that Brazil, followed by Mexico, will be the biggest general-purpose prepaid card market in the region by 2015.

In Brazil, there will be 109.9 million general-purpose prepaid cards in 2015, accounting for US$22.15 billion of spending, NovoPayment says. In Mexico, there will be 64 million general-purpose prepaid cards in 2015, accounting for US$54.34 billion of spending.

“Our study discovered a significant number of consumers with the income, access to infrastructure, and spending behavior to be viable users of prepaid general-purpose cards,” says NovoPayment CEO Anabel Perez. “Around 57 percent of the Latin American population has the need, the capacity, the means, and the necessary economic and social incentives to warrant prepaid cards.”

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International Remittance Legal Guide for Banks

New Appleseed Guide Helps Banks Provide Fair and Efficient Services to Growing International Remittance Market
January 8, 2008

Appleseed, a network of public interest justice centers in the U.S. and Mexico, this morning released a first-of-its kind guide to assist banks and other financial institutions in better serving the growing remittance market. Immigrants living in the U.S. sent $45 billion to Mexico and Latin America in 2006, according to recent estimates from the Inter-American Development Bank.

In addition to providing a detailed market overview, “Banking in a Global Market” offers a comprehensive hands-on approach to setting up transparent and efficient remittance services, drawing on the experiences of large and small financial institutions throughout the U.S.
“Appleseed has found banks need guidance in starting remittance programs and serving the immigrant market. It’s win-win: by offering remittance services, financial institutions get new customers, and immigrants have more safe and convenient places to remit money, keep savings, build credit without paying high and unpredictable transaction fees,” said Betsy Cavendish, executive director of Appleseed. Over the past four years, Appleseed has educated immigrant communities about the U.S. financial services system and highlighted the market potential in immigrant communities to financial institutions. Appleseed has pressed for transparency in the remittance market, urged that a history of sending remittances be considered evidence of credit-worthiness, and fought taxation of remittances.

Approximately 100 banks and credit unions in the U.S. currently offer and actively market consumer remittance products. “That is a fraction of the number that could be providing remittance services to growing immigrant communities,” according to Ann Baddour, senior policy analyst for Texas Appleseed and lead author of the guide. Among Latin American immigrants, 70 percent of remittance senders use cash-to-cash transfer services through money transfer businesses such as Western Union and MoneyGram, while estimates of remittances sent through banks range from five percent to 19 percent.

Through detailed profiles of 11 financial institutions, Appleseed’s guide illustrates six approaches to setting up remittance programs. The profiled financial institutions are:BankCherokee , Central Bank of Kansas, Citizens State Bank, First Bank, Harris Bank, Latino Community Credit Union, Mitchell Bank, Pinnacle Bank, United Americas Bank, U.S. Bank and Wells Fargo.

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Appleseed, a nonprofit network of 16 public interest justice centers in the United States and Mexico, uncovers and corrects social injustices through legal, legislative and market-based structural reform. Appleseed and Appleseed Centers bring together volunteers from the law, business and academic professions to devise long-term solutions to problems affecting the underprivileged and underrepresented in such areas as education and financial access. For more information, visit: www.appleseednetwork.org.

APPLESEED CONTACTS:
Patti RiippaCommunications Associate202-347-7960, ext. 104
Eric GutiérrezImmigration Policy Director202-347-7960, ext. 120(Available for Spanish-language media)
Ann BaddourSenior Policy Analyst and lead report authorAppleseed Financial Access Project512-473-2800, ext. 104512-203-3556 (cell)

CONTACTS FOR PROFILED FINANCIAL INSTITUTIONS:
Latino Community Credit UnionAngel RomeroMedia Relations919-688-9270
United Americas BankJorge FormentPresident and CEO404-240-0101
Mitchell BankJames MaloneyPresident and CEO414-277-9080
Wells FargoLisa Westermann Assistant Vice President, Public Relations Wells Fargo Card Services415-222-6236 415-845-7759 (cell)
Pinnacle BankDaniel PadillaDirector of Latino Banking402-434-3134

America's Great Divide

Hat Tip: Bank Technology News

About 73 million people in the U.S. are unbanked or underbanked, a marketplace that is as diverse as it is unknown-often new to the U.S., frequently entrepreneurial and all lacking credit histories. Banks will find a bevy of new risk tools to help reach out to this market of emerging creditors

By Michael Sisk

The subprime mortgage troubles have grabbed a lot of headlines this year as delinquencies and foreclosures mount and lenders scramble to tighten underwriting standards and head off onerous new rules from a populist-minded Washington. But this story has masked another lending phenomenon gathering momentum: lending to unbanked or lightly banked consumers, whom some are calling "emerging credit."

Make no mistake, there is a significant difference between subprime and unbanked. The former have established and blemished credit histories that can be viewed through the three major credit repositories, while unbanked can't be easily tracked because they have never had a credit card, car loan, mortgage or other financial product that would leave a credit trail. However, these two groups do have two major commonalities: risk profiles that fall outside the norm and must be carefully studied before extending credit; each group also represents a deep pool of potential customers.

Reaching the unbanked is one of those perennial dilemmas for banks, but several new technology tools recently have been unveiled that show great promise in helping to bridge this gap. And it is a gap worth bridging. The Center for Financial Services Innovation estimates 73 million people in the U.S. are either unbanked or underbanked. When one considers that that figure is 56 percent of the total banked population of 130 million, it becomes pretty clear how much business is up for grabs.

Click here to read the rest.

Latin America is Ready for EMV Cards

From gtnews.com.

An excellent entry point to the Card transaction market with partnership from IPM.

Smart cards that comply with global payment standards are set to take the Latin American market by storm now that previous barriers to the adoption of EMV cards - high cost, the small card user base and lack of guidelines in the region - have been overcome.

The use of EMV cards (smartcards that comply with the global standard for payment systems) is exploding in some Latin American applications, such as prepaid wireless and closed-loop stored value cards. But the conversion from magnetic-stripe cards to EMV cards in the region's banking sector, which was loudly predicted five years ago, has not yet happened. InfoAmericas believes the region will see watershed change, with rapid EMV card adoption over the next few years.

Two important obstacles that stood in the way of this transition are now being overcome. The first was the lack of uniform acceptance guidelines in a region dominated by international banks. Until recently, there were no well-established specifications that could allow smooth adoption of the EMV standard across terminal platforms that vary from country to country. The second obstacle was the enormous cost of transitioning to EMV technology given the relatively small card base and its concentration in the affluent market. The benefits to financial institutions, retailers and cardholders were not seen as sufficient to justify the switch, especially considering that EMV cards are also more expensive to produce than magnetic-stripe cards. The market was stuck in a gridlock situation where no EMV terminals were being installed because there weren't enough EMV cards in circulation, and banks were not issuing EMV cards because there weren't enough terminals.

Debit and Credit Cards Reach Critical Mass

Now, however, sustained growth in the debit and credit card market has finally established the critical mass necessary to drive EMV implementation. Twenty-five million new credit cards have been issued since 2001, while the number of debit cards in circulation expanded by more than 30 per cent. This has created the economies of scale needed to support implementation of a variety of EMV card solutions and products.

Previously, the most compelling arguments for adopting EMV cards did not apply to the Latin American market. The card base was too small for issuers and retailers to benefit from the enhanced customer profiling capabilities that EMV cards offer. Fraud was also seen as insufficient justification, since until 2003 the incidence of card fraud in the region was among the lowest in the world.

Other less prominent factors also contributed to the reluctance to adopt EMVs. Many Latin American banks were in the midst of consolidation or acquisition, which was poor timing for any new technology. Banks were focused on expanding their market presence through expanded ATM networks and promotion of financial services. Retail loyalty programs were also limited, as a result of shaky economic recoveries and a generally unsophisticated and untested consumer market.

Fraud Reduction is the Leading EMV Driver

The Latin American card market has grown rapidly over the past few years as it shifted focus towards new lower socio-economic segments and multiple card possession. The expanding card base fostered an increase in fraud, which in turn strengthened the economic case for EMV card adoption. Although the fraud-loss rate in Latin America remains below 0.4 per cent, it is nearly five times higher than in the US market, and growing an alarming 12 per cent a year.

A recent InfoAmericas study revealed that only about half of the banks surveyed believed that the level of card fraud in their portfolios had already reached unacceptable levels. On the other hand, 73 per cent stated that, within the next three years, fraud levels will reach a point where they cannot be offset by portfolio growth, leading to the adoption of EMV cards. Pilot tests conducted by Visa indicate that counterfeiting can be cut by 70 per cent and fraudulent use of lost and stolen cards could be chopped by 90 per cent with EMV cards. Visa and MasterCard are also in the process of changing the rules that allocate responsibility for fraudulent charges, and they will apply these new rules to Latin America beginning in January 2006. After that, the cost of any fraudulent transaction that could have been prevented with EMV technology will be shifted from the card issuers to banks not using EMV.

Remittances - United States to Latin America

According to a study conducted in October 2006 by Monetary Investment Fund/Fondo Multilateral de Inversiones (MIF/FOMIN) reveals some interesting dynamics of the U.S. to Latin America remittance market.

[The MIF/FOMIN] study indicates that 12.6 million Latin American immigrants living in the United States will send about $45 billion to their families in 2006.

• The percentage of immigrants sending money on a regular basis to their relatives has increased from 61 percent in 2004 to 73 percent in 2006.
• The average amount of each remittance sent from the U.S. has increased from $240 in2004 to $300 in 2006.
• The percentage of immigrants that use a bank or credit union to send remittances has increased from 8 percent in 2004 to 19 percent in 2006.

The size of this market cannot be ignored.

The large numbers of transactions and funds indicated in this survey allow participating firms to vastly increase the standard of living in recipient countries by leveraging existing trends without having to further access funds from overburdened governmental and non-governmental (NGO) organizations.

IPM is positioned to enable companies to participate and benefit from this market while benefiting remittance senders and receivers.

International Personnel Management and Remittance

International Personnel Management, LLC (IPM) is here to implement remittance transactions and stored value card transactions in Latin America, the Caribbean (LAC) and around the world.

Contact IPM for the expertise, contacts and solutions to take your concept to reality.

Base of the Pyramid

This is exactly why we at International Personnel Management, LLC are here. IPM is here to serve the Bottom of the Pyramid (BOP) for the betterment of all.

The following is an excerpt from the Multilateral Investment Fund site:

The Base of the Pyramid

The consumer market at the base of the pyramid (BOP) – approximately 350 million people in Latin America and the Caribbean region – represents an attractive yet underserved population for which private companies could develop new products and services. As developed economies constitute a continually smaller share of the global economy and become even more saturated, the related changes in worldwide consumption habits will represent significant opportunities for strategic private companies.

This is not about providing the same, existing products and services that have been developed for the top of the economic pyramid and simply marketed to the poor, but rather a new business approach that seeks to develop new products or services adapted to the needs of the BOP at an affordable price.

Migration Phenomenon Beyond the United States

There are immigration trends throughout the Americas beyond the immigration of Mexicans to the United States.

According to a study* conducted by the Multilateral Investment Fund (MIF), "there are now significant communities of Bolivian migrants in Argentina, Nicaraguan migrants in Costa Rica, Guatemalans in Mexico, Peruvians in Chile, and Haitians in the Dominican Republic."

The MIF was formed to fund projects that stimulate the economies of Latin America and the Caribbean. There are numerous transactional opportunities beyond the United States/Mexico market.

*study titled Sending Money Home; Remittances as a Development Tool in Latin America and the Caribbean