YellowPepper's strategic investment from Visa as part of a $12.5 million Series D funding round gives the company a chance to expand beyond its focus on Latin America and into new markets such as Europe and Asia.
Miami-based YellowPepper started out 14 years ago providing mobile money services for the unbanked and underbanked in Latin America and the Caribbean. Its technology powered TchoTcho Mobile, a mobile wallet platform deployed by Caribbean telco Digicel and Scotiabank in Haiti following the 2010 earthquake. The company eventually changed course and now focuses solely on providing mobile wallets and mobile banking apps for banked consumers, marketing and loyalty software, and mPOS technology for merchants.
It found that the cost of providing mobile money technology for the unbanked didn’t justify the revenues it received from that segment. Under its new model, YellowPepper began working last year with Visa to accelerate deployment of digital payments by Latin American issuers, acquirers and merchants.
"As the partnership progressed, Visa decided to make an investment in us," said Serge Elkiner, YellowPepper's CEO. "Having Visa as an investor will really help us expand our base of bank and merchant clients, and will open doors for us in the region."
Latin America and the Caribbean remain YellowPepper’s priority for now, but the firm is open to operating in other regions. It is already exploring options in Europe, following the introduction of the open-banking-focused PSD2 regulation this year.
“We provide the middleware between legacy banking systems and the mobile payments ecosystems,” says Elkiner. “So it makes sense to offer our middleware in Europe to onboard third-party fintechs to existing bank rails, and we are already in discussions there. Another potential market for us is Asia.”
As part of its July 2017 alliance with Visa, YellowPepper agreed to incorporate Visa’s APIs including the Visa Token Service, Visa Checkout and Visa Direct in its mobile payments platform. “Visa is our preferred card network partner, but we do work with other networks such as Mastercard,” says Elkiner.
YellowPepper also supports Mastercard’s tokenization platform, the Mastercard Digital Enablement Service, and offers a proprietary tokenization solution for its mobile wallets.
“We’re technology-agnostic, and our mobile wallets work with NFC, BLE, one-time passcodes, and QR codes,” says Elkiner. “Our approach is to tokenize customers’ payments information, with their credentials being stored either in the cloud or on a server.”
Because YellowPepper’s software is integrated with local processors, it supplies its merchant clients with additional information such as their purchase history at that merchant and, subject to the client’s permission, their location, as well as their card details.
Elkiner says that YellowPepper's strengthened relationship with Visa will help it enter the massive Brazilian mobile payments market as early as 2019.
“This year, YellowPepper's focus is to expand its presence in Central America and the Caribbean,” he says. “New countries for us include Trinidad and Tobago and Costa Rica … Mexico and Colombia are our fastest-growing markets, followed by Ecuador, the Dominican Republic and Peru.”
Because of its focus on serving banked consumers in Peru, YellowPepper isn’t a participant in BIM, the mobile payments service developed by Peru’s banks and telcos for the country’s unbanked.
With the advent of ultra-low-cost Android smartphones, Latin America is the fastest-growing smartphone market worldwide. According to Pew Research Center’s 2016 data, smartphone adoption is expected to reach 60 percent of Latin American mobile phone users by 2020, up from 38 percent in 2016.
Another key trend in Latin America is bancarization, although growth rates in consumers obtaining bank accounts have stabilized recently. On average, 40-50 percent of the population have a bank account in Latin American countries, but credit card use remains low compared with other regions.
Currently, YellowPepper has 6.6 million monthly active users who execute 480 million transactions yearly using its technology, and over 400,000 merchants. It has over 60 clients in six countries: Mexico, Colombia, Peru, Ecuador, the Dominican Republic and the U.S.
"Our bank clients range from large banks such as Banco Davivienda, the largest bank In Colombia, to credit unions and microfinance institutions," says Elkiner. The partners it lists on its website include Citibank, Scotiabank, Western Union, Starbucks and mobile gift card firm Swych. A number of YellowPepper’s bank partners are looking at offering microfinance loans on its platform to their customers, according to Elkiner.
"With Davivienda, we've deployed a solution enabling customers to be instantly issued with virtual Davivienda Visa credit cards on their phones in Apple Stores in Colombia,” says Elkiner.
Previously, Apple Store clerks would offer someone buying an iPhone or MacBook the option to apply for a Davivienda card offering interest-free finance for their purchase for 24 months. But this process had a low card activation rate due to the delays involved in the customer actually getting the card.
With YellowPepper's system, the customer receives a one-time seven-digit code on their phone, which they use to make their first purchase immediately, instead of having to wait for the card to be mailed to them. This one-time code can be sent to a traditional cellphone, and then read out to the clerk. But for further virtual purchases with their new Davivienda card, the customer needs to download YellowPepper’s app to a smartphone.
“We’re working with issuers in the Dominican Republic, Mexico and Chile to deploy our instant issuance solution,” says Elkiner. “Davivienda and Apple have demonstrated that our technology significantly increases card activation rates.”
One of the fintechs YellowPepper is collaborating with is Israel’s PayKey, which offers banks a mobile banking and payments keyboard they can embed into popular messaging apps. YellowPepper is also working with MagicCube, which provides a software-based secure element for mobile payments and is developing a PIN-on-glass solution so customers can enter their card PINs onto their own phones rather than a traditional PIN pad.
“Partnership is key to our business strategy, as we realize that collaboration is essential in the digital payments ecosystem,” says Elkiner. “In order to create digital use cases, we don’t need to develop everything ourselves, but we just need to add partners to provide new use cases.”