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Fintechs, OTTs, MNOs An opportunity or a threat to traditional banks

 
April 14, 2017

Due to the mass adoption of the internet-based digital technologies and applications, value chains are shifting dramatically. As a result, new and sometimes unexpected partnerships are emerging. With the proliferation of smart phones and mobile devices and with low bank penetration in many regions throughout the world, mobile money is poised to be the next wave of growth in the mobile payment and related services market.

Fintechs are growing at record speed with their mobile payments, mobile banking and mobile commerce solutions. They are not only attracting attention from the traditional banking institutions but also causing disruption to the mobile network operators (MNOs) by creating a significant consumer mind shift. A Citigroup study data shows that more than 19 billion dollars were invested in the fintech sector in 2016, up from only 1.8 billion five years ago.

Banks are aware of the increasing threat fintechs, OTTs (Over the Top), MNOs (Mpesa, Airtel Money, etc.) and other 3rd party (Google Wallet, PayPal, Square, Ola, etc.) disruptors pose. These new providers are encroaching into the traditional banking territory by offering digital payments as a point of entry in areas with low bank accessibility. The risk for banks is that the new competitors will consign them to a limited role as back-office utilities, while their competitors become the new face of their customers financial lives, especially the low/irregular income groups and unbanked population.

Banks are unable to respond to the threats simply by being digital, i.e., close down their brick and mortar branches and roll out improved mobile or online banking services only. If they want to defend their ground against the attackers, they themselves must embed themselves into the commercial lives of their customers by partnering with competitors to provide branchless banking and other innovative services.

There are many examples where these kinds of partnerships have already been formed. For example, Softcard, a mobile payment platform, created by three very large mobile operators in USA – AT&T Mobility, Verizon Wireless and T-Mobile, allows consumers to access their current payment and loyalty cards while enabling them to take advantage of coupons and offers from partner retailers. Another example is Western Union’s partnership with M-PESA that opened up Western Unions huge money transfer network to the Safaricon-owned mobile wallet service. This partnership allows customers in USA, UK and other countries to transfer money to a Safaricom/M-Pesa users account. They are notified via SMS message from M-PESA once the money is available in their account.

Fintechs are estimated to capture 17% of the banks revenue by 2023 despite the heavily regulated banking industry. Mobile money may offer traditional banks a way to stem this tide by serving as a stepping stone that will enable them to offer formal financial services to the millions of people who lack access to banking services.

Progress, however, has been impeded by bankers fears that mobile operators will eat their lunch and by regulators who worry that mobile-money schemes will be abused by fraudsters and money-launderers.

Instead of lobbying against mobile money and partnerships with telcos, banks should see this as an exciting opportunity to exploit telcos huge subscription base and powerful branding to reach new customers. Mobile money can help banks capitalize on their existing client base as well as the unbanked and under banked customers which will help them retain their market share. And its a win for telcos too who can offer banking products currently out of their reach to their existing customers to improve their revenue which is highly impacted due to the loss of margins from the voice and data services.

Partnerships will be key to survival in the digital age. To thrive, enterprises must continually explore and embrace new business models that will enable them to anticipate and meet customer changing and unmet needs.

Siddhartha is Product Manager of Customer Intelligence & Insights for Communications at TCS Digital Software & Solutions Group, a next generation analytical solution for telcos to help them deliver superior experience, improve their wallet share and increase cost savings through operational efficiency. Embracing the core values of innovation, learning and growth, he has driven complex business intelligence solutions & consultation programs successfully across varied domains and industries including banking and financial services, healthcare, retail and telecommunications. Prior to joining TCS, he had extensive exposure on offerings for revenue assurance and fraud management solutions with clients in telecommunications to reduce the impact of revenue leakages on their profitability.