Although there is a long history of cooperation between banks and telecom companies, the market has now just become mature enough for major strategic alliances. There are clear signs confirming this trend: the involvement of telecommunications market leaders in banking activities, commitment to joint ventures instead of single ideas, and the introduction of a comprehensive product portfolio instead of focusing on payments only.
Time will tell how these alliances will develop in terms of value proposition, product portfolio, cooperation model and banking transformation. However, the reality is that telecom banks have all the ingredients to become game changers and enablers of higher-value financial services, both for the retail and SME market.
Telecom-Banks, drivers for financial inclusion
Unbanked and underbanked individuals around the globe have heard ‘NO’ from operators and financial institutions for a long time. As a result, around 80 per cent of the population in emerging markets is on prepaid mobile plans with almost no access to financial services, nor a financial identity. They have not been offered the opportunity to build credit in a way that is feasible for them. However, in recent years, we have started to see more opportunities that will make this possible:
- Telcos are moving in — Traditional financial institutions are partnering with telcos. These partnerships are leading to expanded digital service offerings for the underbanked in developing markets and have transformed how the people within those markets complete transactions. The rise of financial inclusion due to these partnerships will have a clearer impact across emerging markets such as Southeast Asia, India, Latinamerica and Africa. This impact has already been noticed in Africa. In Kenya, for instance, financial inclusion has raised from 60% to 80% only in the last five years.
- Transparency on data requirements — The General Data Protection Regulation (GDPR) in the EU was the first step in providing a higher degree of protection on personal consumer data, and it will completely change the available set of opportunities for the unbanked in other regions. Unbanked people will have access to a wide range of services offered by third-party partners, which will allow telecom companies to personalize their user experience. This personalization strategy will also enable financial services providers to begin offering a multitude of products and services, including credit.
- Swift from prepaid to financed devices — With the expansion of device financing programs, it is easier than ever for prepaid subscribers to buy a new smartphone. Telcos offer consumers––who are typically excluded from financial services––the possibility of building their creditworthiness. The proliferation of smartphones is necessary to support a rise in financial inclusion. Through the use of data science and emerging transactional technologies, more financial institutions and telecom companies will now be primed to offer new sources of financing other goods besides smartphones or data plans.
- Win-win cooperation is now possible — Telecom companies are now able to reach their current customers and extend their existing portfolio of products by including financial services, which leads to additional profits. Customers bound by more products are less likely to change providers, which leads to a reduction in churn rate and in the costs of maintaining clients. However, data sharing is more important. Clients already acquired by a telecom bank provide additional and valuable information, such as spending habits, which is very useful when offering telecommunications-related products.
- Added value for customers — From the customer perspective, the main advantage is a reduced financial burden. Right after launching, Telecom banks should make an effort to revamp their offering in order to attract as many customers as possible. Free current accounts, higher interest rates on savings accounts, cashback features for mobile payments or instant transfers are just some examples of how Telecom banks can easily bring new value to their customers. Convenience is also very important when it comes to the perceived value from customers. Now, Telecom companies can add banking products, allowing customers to purchase, manage and track everyday payments from a single place.
International overview of Telecom - Banking alliances
So far, most of the cooperation and alliances between banks and telecom companies have focused on enhancing mobile payments and increasing usability of payment-related technologies. While the scope of services offered is gradually increasing, it is still far from the complete product portfolio of a traditional bank.
A joint venture that claims to be the first European strategic alliance between telecom companies and banks comes from Spain, where Santander, CaixaBank and Telefónica created Yaap, aiming at developing business opportunities and creating an online community of merchants and customers seeking offers, discount or promotions, in the second quarter of 2013. This venture was supported by a digital wallet payment service and claims to be the first European strategic alliance between banks and telecom companies.
Another example is the US subsidiary of T-mobile, which launched Mobile Money in the beginning of 2014, in this case, without any bank participating. They offered a prepaid account wired to a mobile banking application and debit card, allowing customers to make transfers, payments and ATM withdrawals.
Also in 2014, the struggle for new revenue sources led telecom companies in Poland to enter alliances with banks. Well-adopted mobile and internet technologies contributed positively to customer acquisition for newly launched telecom banks. Orange and T-mobile, two of major Polish telecom companies belonging to global telecommunication groups, decided to launch alliances with banks, mBank and Alior Bank.
In 2016, Orange acquired a majority stake in Groupama Banque before launching Orange Bank in France. In late 2018, Orange unveiled plans to offer banking services in seven European countries by 2023, setting itself a target of attracting 4 million banking customers. Two years after launch, Orange Bank has attracted more than 500,000 customers, with 20,000 new customers signing up every month for its services. Banking services such as micro-credit will also be launched in Africa and The Middle East to extend the range of services already offered through Orange Money. Capitalising on the success of offers combining banking and telecoms, Orange Bank will develop new products and services related to payments, credit, insurance and a specific digital offer for professional and small businesses.
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