As mobile devices become ubiquitous in our lifestyles, coupled with the huge shift to accessing digital services, the environment is ideal for mobile financial services to flourish spectacularly. The convergence of banking and telecoms essentially means the digitalisation of financial services and the evolution of new ways of transacting. At the same time, traditional banking providers are being increasingly disregarded by the mobile-savvy generation. This is creating a huge opportunity for mobile operators. The GSMA sums this up nicely stating: “Originally a product for a few select markets, mobile money is now a global phenomenon, recording astonishing growth in emerging markets and reaching a broad range of customers.”
Communication Service Providers (CSP) are well positioned as the catalysts and the drivers of this massive mobile money market and possess capabilities to unlock new business streams. At the same time, through mobile money, CSPs can provide a force for good for those unable to access any financial services; deemed the ‘unbanked’. According to the World Bank, there are 1.7 billion adults around the world who are unbanked, yet more than 65% of those adults own a mobile phone. Telecom companies can utilise their infrastructure to provide vital support to this unbanked population.
Mobile money services can help to eradicate poverty by empowering micro-businesses and bringing financial tools such as loans and insurance within reach.
CSPs in matured markets have started to offer such services in recent years, but there is still a gigantic opportunity for CSPs in emerging and smaller economies to diversify their business. Benefitting from a ubiquitous distribution network, a history of delivering superior customer experience and an extensive partner ecosystem, CSPs have the key ingredients to provide the power of electronic money in the hands of cash-based communities.Essentially, telecom providers can benefit from this endeavour with minimal risk and limited investment.
A ‘digital wallet’ may well be the future of mobile money. This notion includes remittances, mobile bill payments or recharges, utility payments, even being able to access balances, statements, and much more anytime anywhere. ‘Mobile’ phones are exactly that, meaning mobility is a key feature for those that have been restricted for so long from financial freedom.
While this seems like a winning scenario for all stakeholders involved, how can telcos generate revenue from such endeavours? There are several ways, ranging from charging service providers for every bill payment made through the digital wallet, to introducing transaction fees for merchant payments and point-to-point transfers – all at no extra cost to the subscriber. Some of the advanced CSPs in this space are leveraging digital wallet capabilities to create additional revenue streams through enabling e-commerce and by providing marketplace platforms for digital services. Of course, there are opportunities to offer further mobile money facilities to the subscriber in terms of loans, insurance, etc., although this is a secondary route and one that must meet industry regulations and necessary criteria.
Operators can also plug-in loyalty programs for users to ‘earn and burn’ loyalty points for every transaction. While this encourages the usage of digital wallets, it also increases user stickiness and reduces churn for the operators. Additionally, with more revenue opportunities for the merchants and the agents, CSPs can drive a sense of loyalty in their extended business arm too. This engagement can run on two business models. One option is whereby mobile operators provide a lump sum one-time pay-out to the agent for every new mobile money account. Alternatively, they may have a revenue-sharing model where agents are paid a lesser lump sum amount and get a part of the transaction fee on every transaction being made by the end-user for the lifetime. With the advent of new players in the market, it is more critical now for the operators to ensure agent loyalty, which can only be achieved via such disruptive business models.
Bringing the idea to life
CSPs cannot embark on this journey alone. Cross-industry partnerships need to be established and managed in order to be successful. Many interconnections need to be integrated to build a solid ecosystem, as transactions involve multiple stakeholders and use cases. The highest possible levels of security, proactive fraud detection and risk assessment are critical. The enabling platform must be flexible to manage national and international regulatory requirements. It must be scalable to enable the service offerings to be expanded into areas such as insurance, investments and loans.
It may look to be a transformation that may require large investments for CSPs to transform to DSPs, but since this is a digital model, there is no massive outlay required unlike the opening of brick and mortar banks to bring these financial services to the unbanked. Their phone is the access point, and of course the services are available whenever and wherever required.
CSPs can seize this unprecedented opportunity to revolutionise and reshape the traditional core banking and payment ecosystem. The right time is now and CSPs must adopt a faster time-to-market coupled with flexible business models to empower their subscribers. They have the power to deliver benefits for the financial industry, the mobile industry and – most importantly – have the means to improve the quality of life for millions of people.
