New BearingPoint Institute Report concludes: Banks must partner up with telcos to keep non-bank rivals out of core activities

Paris/London/Frankfurt, April 16, 2015 - With smart mobile devices becoming a prominent feature in the future landscape of financial services, banks must embrace telco partnerships rather than trying to go it alone, a new BearingPoint Institute paper suggests. Vodafone’s much-praised mobile money and payment transfer service M-Pesa which started operations in Kenya and Tanzania and has now expanded to other economies including Afghanistan and India, is a well-known example of a telco successfully operating in a traditional banking space to the benefit of millions of people without access to a formal financial system. The authors of the report, Jean-Michel Huet and Philippe Roubin, Partners at BearingPoint, say that banks can still be pioneers when it comes to defining and developing what the future mobile financial landscape looks like. But telco partnerships will be crucial to effectively embrace this opportunity.

Any model for banks to deliver mobile financial services by themselves is difficult to justify if measured against banking criteria such as transaction value alone. Partnerships also limit potential brand erosion, not just from telcos but also internet players such as PayPal and Worldpay, and technology companies, such as Google, Apple, all of whom are lining up to make the most of the opportunity.

Jean-Michel Huet, Partner at BearingPoint

Mobile telecoms-based banking is gaining traction in emerging markets

A number of partnerships have already transformed the mobile financial landscape in Africa, where access to mobile phones is much greater than to bank accounts. A couple of examples are Orange Money with Equity Bank in Kenya and BICIS in Senegal. In 2013, more than half of the 245 initiatives and projects to give “unbanked populations” access to banking services were in Africa. Such partnerships have done little to shake up the financial industry in Europe, where the market for mobile banking is still relatively new. In Spain, for example, Yaap came to life through the collaboration of Caixa Bank, Santander and Telefonica. But on a broader level transactions in Europe are still almost exclusively done through the traditional banking services.

With the West yet to adopt mobile financial services in any real capacity, a significant opportunity exists to address this latent market need. Banks may have greater ability to manage financial flows but telcos have a broader reach when it comes to customer engagement and service delivery.

Jean-Michel Huet, Partner at BearingPoint

The paper argues that education in using mobile banking services will be a critical factor in it being widely adopted, particularly in developed markets where behaviors in how customers use banking services are already entrenched. It suggests banks have “no choice” but to choose to engage with telcos and over-the-top (OTT) service providers as they start to push deeper into their territory.

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