Telcos, Banks and the Threats they Face
Will Change Benefit The Customer?
People often say they do not like change. Why open yourself to the unknown? Conversely, when we are online we crave adventure, excitement and the mysterious! We have embraced social media, online TV streaming services and online shopping where we buy the most unsuitable clothes, hate them when they arrive and post them back!
Yet, in its online practices, the banking community remains relentlessly conservative and have taken few initiatives to help the unbanked and those outside metropolitan and urban areas. By closing branches, banks are limiting their customer base.
The Continent That Dares To Change Habits
The COVID-19 pandemic made hardly a dent in the revenues of telecommunications companies, but it demonstrated their far-sightedness in already having provided customers with alternative mobile banking methods. They have capitalised upon the sluggish attitude of traditional banks and launched customer-friendly mobile money products.
Another interesting trend is the increase in connectivity to unserved or underserved areas. Telecom operators continue to expand their coverage and the cost of connectivity is making telecom services more accessible. It is also making those services more attractive for the Over The Top (OTT) players.
While banks have looked to partner with telcos, the operators are looking to offer lending, insurance, savings and more after long-ignoring mobile money’s target market in favour of higher-income Africans.
The history of telco mobile payments illustrates the type of initiative the banks need to aspire to. Various mobile payment services serve over 25 million customers in Kenya alone. The numbers using these services is growing, covering a wide range of financial services aimed at both consumers and businesses, notably farmers. Safaricom has been involved in some of these services.
Services have expanded to include m-tiba: a digital health application and e-wallet enabling customers to save towards health expenses; Fuliza; providing consumer credit overdraft facilities in cases where customers have insufficient credit to complete a transaction; and Digi Farm; a platform offering financial and credit services, Agri products and farming knowledge. Safaricom’s savings and lending under the Fuliza brand are key growth engines.
In Africa, Orange Money offers digital payments and money transfers in 18 countries in Africa and in Romania. It also expanded its services to savings, loans and insurance products in select markets. The service is generally independent of Orange’s telecoms networks with the Orange Money wallet linked to the customer’s phone number. At the end of 2020, the Orange Money customer base comprised almost 22 million active customers, up 20% year-on-year. In the midst of the pandemic, Orange Money’s revenues rose almost 22% in the fourth quarter of 2020, meaning the business generated more than €500 million revenues for the full-year (just over 1% of group revenues).
Orange Bank Africa launched in July 2020 in Côte d’Ivoire, where Orange initially launched Orange Money 2008. By the end of 2020, it had attracted more than 350,000 customers with more than half taking out loans. Orange Bank anticipates very strong demand for micro loans in Africa. Orange Bank is now using cloud-based SaaS to deliver its solutions across Africa.
Partnerships make sense given the different, but frequently complementary business models and value propositions of banks and telcos.
The Role of Partnerships
However, working in partnership with telcos offers banks a route to market and keeps new players out of core banking activities. 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. However – more of that in our next blog.