Over recent years, banks and telcos have developed a symbiotic value chain, with telcos either reselling financial services from banks or providing services autonomously, with the mix largely depending on local regulations and the selected business model of the operators themselves. An operational management model is most usual, with a co-managed model in partnership with banks also frequently adopted.
Fig. 1: Typology of management models of the value chain in the banking sector (note 1)
While this relationship is generally straightforward, the players have different objectives. Whereas telcos have traditionally seen average customer revenues (ARPU) and longevity as success measures, banks have been more focused on transaction volumes and account balances. Financial institutions have seen mobile payments as a lever to create a new base of banked customers, with services restricted to current accounts and interpersonal transfers.
As the market evolves, however, telecommunications providers will look to provide micro-savings, micro-loans and micro-insurance services to the mobile banking customer base in direct competition with traditional financial service businesses. Telco mechanisms respond to issues that banks have been unable to overcome in the past. Not only are their systems designed to work at a micro-transaction level, making them more suitable for customers with restricted purchasing power, but also, they can be conveniently used in most every geographic location (via their networks) even when there is no physical bank branch present.
With respect to insurance products, for regulatory reasons telcos cannot offer these products directly (not without a license) so they have tended to partner with insurers – which means the insurer deals with such aspects as managing risk and handling claims. In addition to the licensing barrier to entry, insurance companies have considerable expertise in evaluating risk, constantly assessing information about customer profiles and lifestyles, so they can create insurance products appropriate to their target markets.
Both MicroEnsure and BIMA are examples of companies working in partnership with telcos to deliver micro-insurance services. Such organisations play an important innovation role, acting as neither mobile provider nor bank. For example, in many cases they do not look to build revenues directly from premiums, but rather, receive a cut from mobile service bills for their add-on services. Meanwhile, the telco operator, who is not equipped to deal with such aspects, can deal with product marketing, contract management and customer service.
The market is set to benefit from significant innovation that leverages mobile banking and insurance services. A great, albeit extreme example, is Wizzit, a startup operating in South Africa that is neither bank nor mobile operator but which operates its mobile banking services independently of both.
Further, it makes sense that connected objects (fitness bands, smart homes, connected cars and so on) will provide a useful data feed to enable new service offerings and further establish mobile operators as the ideal partner for insurance companies – one reference is the home monitoring solution of SK Telecom in South Korea.
What of the future? We expect continued growth in the use of data, aided by the opening of interfaces between mobile payment providers. ‘Contactless payments, mobile apps, cloud services, developer communities, the Internet of Things… are driving enterprises in general and telcos in particular towards making their precious data stores available via an API,’ says Aqeel Hayat, head of mobile financial services for China Mobile’s Pakistan operator, Zong. ‘These organisations need to transform, to become platform providers that support the creation of new offers based on the use of such data, such as micro-loans for example.’
This is certainly the case in Tanzania, where all mobile wallets are compatible with each other. Taking things further, in 2014 the GSMA established the Mobile Money Interoperability Programme, which aims to in increase interoperability between the main operators in the country.
Whatever is coming, one thing is for sure – banks, insurance companies, telcos and indeed startups have a great opportunity if they can work together to deliver the products and services that meet the needs of this rapidly growing market.