Dialing for Dollars

Banking penetration in the Dominican Republic has been slow to rise in tandem with the nation’s economic and financial development. The World Bank’s International Finance Corporation estimates that only 29% of the population is banked due to substandard infrastructure. In contrast, mobile penetration skyrocketed in recent years, with rates reaching 90% and still rising. Well aware of the importance of a robust banking sector, the Dominican Republic’s banking industry is working hard to take advantage of this penetration by offering new mobile banking options, giving previously underserved citizens new options to access credit.

As the largest market in the Caribbean, domestic and foreign officials all realize how vast the untapped potential of the Dominican banking sector is. A rapidly growing economy plus a young, urban population means it is frequently named one of the countries to watch in the coming years. However, the fundamental gaps in the nation’s banking structure threaten to hinder further growth. The lack of adequate and established banking structures means that access to credit is limited, which constrains the ability of SMEs to grow. Rural areas are particularly cut off due to inadequate infrastructure. Moreover, the low rate of bank account usage leads to high levels of informality and puts families at risk of financial insolvency. The DR has high rates of remittances, but unlike other countries, most arrive in the form of cash deliveries.

Government and industry officials are working hard to find a solution to this lack of formal banking penetration. The three local banks that own more than 60% of all market share (Banco Popular, BanReservas, and Banco BHD-León) and the nation’s largest mobile network operators (Claro, Orange, and Viva) have been in talks to merge the two sectors in a manner that benefits all parties. An important first step came in 2012 when the Dominican Republic’s mobile operator allocated a digital dividend spectrum for mobile services. This 700MHz frequency band will allow operators to support more services in rural regions.

A leading mobile banking program that is currently active is tPago, a mobile banking network run by Dominican mobile payment operator GCS International. Launched in July 2012, tPago links bank accounts to a mobile phone, letting consumers conduct transfers, bill payments, and merchant payments through their mobile network. tPago has been wildly successful thus far, penetrating more than a quarter of the banked population—more than 700,000 Dominicans. An additional 9,000 merchants have adopted the service as a mobile payment system, further increasing its utility for the Dominican consumer. All told, more than USD300 million has been passed through tPago through more than 70,000 transactions, making it one of the Dominican Republic’s most popular brands. tPago’s success has attracted regional attention; it received an award naming it the “Best Mobile Payment Platform in Latin America” in 2014 and will arrive in Guatemala in early 2017.

Another service aiming for the same impact is Orange’s mPeso, a prepaid mobile wallet administrated by Banco Popular Dominicano. Launched in February 2014, it offers many of the same capabilities as tPago. As a partnership between the largest bank and second-largest mobile carrier, the service has the ability to reach an even larger number of Dominicans upon implementation. Citigroup, never one to be left out, also has its own Citi Mobile Collect program, which has partnered with a microfinance group to help small businesses replace cash payments with mobile transactions. Like tPago, both m-Peso and Citi were developed by GCS International.

Industry officials understand that simply introducing the programs is only a first step to increasing banking penetration. Education is needed in order to help businesses and consumers take full advantage of the capabilities of mobile banking platforms, and further government investment in mobile networks is required to fully extend access to the Dominican Republic’s rural provinces. The rapid growth of mobile banking platforms in recent years shows that the Dominican market is ready for mobile banking platforms. Fully developing these platforms will turn them into vital economic tools and have positive effects on the country as a whole.