www.europeaninancialreview.com 55 Mobile Payments in Brazil: How to Make hem Happen? By Eduardo H. Diniz, Adrian K. Cernev, Lauro Gonzalez & João P. de Albuquerque There is a pressing need for expanding the level and the quality of financial services to the poor. While about 50 per cent of the global adult population has access to formal financial services, the rate of mobile penetration has reached 87 per cent, with about 6 billion active lines, making the use of a mobile payments system one of the most promis- ing innovations towards global financial inclusion. Taking Brazil as a prime example, this article discusses the possi- bilities and restrictions of implementing a mobile payment system in developing countries. O nly 50 percent of adults worldwide report having an individual or joint account at a formal financial institution. 1 However, this figure can be mislead- ing. When breaking up the latter percentage, we can see that bank accounts are nearly universal in high-income economies, where 89 percent of adults report that they have an account at a formal financial institution; in contrast, this is only true for 41 percent of adults in developing economies. Globally, more than 2.5 billion adults do not have a formal banking account; the majority (2.2 billion) from developing economies. Besides banking accounts, all components of a basic financial services basket, namely, credit, insurance and savings, show a relevant gap between the current supply and the potential demand. Financial inclusion, defined as the access and use of financial services, seems to be the most appropriate expression to capture the issue of serving the underserved by banking. Considering the relationship between finance and development 2 there is a pressing need for expanding the level and the quality of financial services to the poor, pointing out the relevance of promoting finan- cial inclusion. Financial inclusion has always been connected to inno- vation. Microcredit, for example, developed from prac- tices totally innovative to the traditional banking business. Group loans, credit agents, progressivity and weekly instal- ments are examples of innovative and to some degree suc- cessful practices that have helped to expand financial ser- vices to the poor. Another example of innovation is the development of credit risk models using “alternative data,” such as electricity bills. 3 The task of financial inclusion is gigantic and cannot be accomplished without the effective engagement of traditional financial system players, such as banks and insurance companies, together with an involve- ment of new participants, capable of developing innovative business models. Mobile Payment for financial inclusion In this context, the use of mobile payment systems is one of the most promising innovations for developping finan- cial inclusion. Delivering financial services through mobile devices represents an innovative concept known as “mobile money.” However, it is important to emphasise that there is no consensus around this concept, which encompasses currency digitalisation, use of mobile payments, and mobile banking. The logic is quite simple: while about 50 per cent of the global adult population have access to formal financial ser- vices, the rate of mobile penetration reached 87 per cent by the end of 2011, with about 6 billion active lines. Therefore, if financial services were to be provided through mobile phones, they could reach, in a relatively easy and cheap manner, people who are currently excluded from formal financial ser- vices. There are several concrete examples where “mobile money” has successfully served the poor, the Philippines and Kenya being the most successful ones. It is also interesting to note that the data provided by the World Bank show that an increasing part of the population, particularly in less developed countries, rely solely on financial services via mobile phones, which are provided by institutions outside the formal banking sector. For example, in Kenya 40 per cent of the population that uses mobile financial services remains without access to traditional banks, meaning that financial inclusion is not synonymous with banking inclusion.