Peru: Banking innovation for the nation

When we last examined the state of the Peruvian economy, economic growth displayed poor outcomes in 2015, to later accelerate in the following year. 2017 brought numerous challenges that are still affecting the country today, most notably the political crisis that resulted in the former President Kuczynski’s resignation in early 2018 after 20 months in power. Since December 2017, instability has rocked the political scene due to the former president’s connections with the scandal-hit construction firm Odebrecht, causing a political crisis and dampening investment in one of Latin America’s most stable economies.
 
Meanwhile, public investment this year is expected to grow by 17.5% to repair damage from the severe floods in northern areas of Peru which hit the region in 2017. Overall, growth has slowed, with Peru cutting its 2018 GDP growth estimate to 3.6% down from an earlier forecast of 4%. Peru’s new President Martin Vizcarra took up office at the end of March, and there is now a growing optimism that the country can gradually return to the path of economic and political stability.

The country has been working hard to improve access to banking services, with initiatives focused on harnessing new technologies to this end. Peru’s local banks are closely monitoring the ongoing developments relating to digital banking advancements within the country, intending to respond or adapt to new innovations as they come into play. With its unique digital environment continuing to evolve, many countries worldwide are increasingly looking to Peru as an inspiration for banking innovation.

Establishment of Billetera móvil (BIM)

Peru has recently introduced a mobile payments ecosystem named Billetera móvil (BIM), which launched in 2016 as the world’s first fully-interoperable national mobile money platform. The system allows both banked and unbanked consumers to load money onto their smartphone/feature phone in order to send and receive payments to anyone in Peru, check account balances and top-up mobile phones.

The key way in which the initiative stands out from other mobile services globally relates to the fact that practically all of Peru’s major banks and telecom companies collaborated to use this one shared technology across the market. A model initiative formed by Peruvian Digital Payments (PDP) – a new service provider established by the Peruvian government, banks, telecoms and others in 2015 – BIM was developed specifically to increase financial inclusion in the market as, according to the World Bank, approximately 70% of Peruvians remain unbanked, and the country has the lowest bank branch penetration in Latin America.

This collaboration among Peru’s institutions seems to have inspired other countries to launch similar initiatives, and PDP claims it frequently receives requests from payment schemes in other markets to aid them in developing their own interoperable mobile money systems. Meanwhile, The Global Microscope – a project overseen by the Centre for Financial Inclusion that evaluates the enabling environment for financial inclusion – ranked Peru first in the world for 2016.

Effects of BIM

Since its launch two years ago, BIM has certainly achieved important milestones. As of May 2018, the number of BIM wallets stands at 430,000, increasing by roughly 10,000 a month. Such wallets are also being used more frequently, with the number of monthly transactions through BIM expected to reach half a million by July and the industry targeting one million by the end of 2018. However, there is still much room for growth, and the core issue with expanding BIM relates to the difficulties of reaching rural unbanked consumers directly. Instead, a focus is being placed on peri-urban areas with an eventual extension to rural communities.

To promote the BIM platform in underbanked areas, PDP has been building a network of retail agents (small merchants) known as ‘BIMers’, who have a smartphone acting as a mobile POS device that can be used for transactional services on behalf of banks. Currently, there are roughly 5,000 BIMers in the country, with the aim to double this number by the end of 2018. There are also plans to offer payments via social networks in 2018.

The Peruvian market is also a clear example of how advancing the use of digital services on a large scale and at a low cost is stimulating the emergence of Fintechs. Fintech start-ups have only really just begun establishing themselves in Peru in the past 2 years, although the number in operation is growing rapidly. While this does not necessarily benefit Peru’s established banks, it creates another potential avenue to increase financial inclusion.

Conclusion

There are several economic and political challenges for Peru to overcome, however, the appointment of the new President has spurred a new optimism in the market. The new chapter started by his appointment is expected to lead to a more stable political climate and help GDP growth to get back on a secure footing over the next few years.

The Peruvian institutions have been building up powerful coalitions and initiatives over the past couple of years to tackle crucial financial inclusion issues that have set a positive example in the rest of Latin America. The use of BIM is certainly increasing, though a large proportion of this uptake is amongst consumers who are already banked. To continue to expand financial inclusion, infrastructure development will be crucial in enabling financial service providers to leverage the power of mobile access and digital technologies.

Regulation will be an additional focus of Peruvian authorities as new fintechs continue to enter the market. It will be interesting to observe how Peru’s unique banking environment continues to develop in the near future, especially in relation to the effects it will have on Peruvian economy and society overall.

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