The launch of Orange Bank in November 2017 begs the question as to whether other telcos should also be pushing much deeper into financial services, as new regulation and the rise of smartphones disrupt traditional banking.

Introduction

This report analyses Orange’s launch of Orange Bank at the end of 2017, examining the strategy behind the new services, considering why Orange decided to launch a bank independently and exploring the ways in which the business model could be relevant to other telcos.

In examining the business case, the report looks at what Orange learnt from its previous mobile money initiatives, what its long-term strategy is, why it chose to launch a new banking service and how it was aided or impeded by regulatory changes in the industry.

The report is structured into the following sections:

• The first part of the report outlines consumer behaviour changes and regulatory intervention in the payments industry. This explains why the current climate is aiding the launch of new mobile banking services by telcos and other innovative players.
• The second section considers the strength of the banks’ position in the consumer payments market, and how leveraging customer data and digital services can provide opportunities in this area, with a particular focus on telcos.
• The third and final section examines the Orange Bank proposition in detail, mobile money strategies from operators in developed and developing markets, and how Orange’s approach can inform similar telco strategies, while also suggesting ways for telcos to differentiate themselves from the competition.

How consumer financial services is changing

Smartphones drive fintech adoption

Digital financial services, part of the broader fintech trend^[1], have been gaining traction among consumers for some time. By some measures, about one quarter^[2] of the global population are already using some kind of fintech innovation, while fintech start-ups have secured $45 billion in funding since 2015.

In France, for example, 793.4 million online banking payments were made last year, according to the European Central Bank, an increase from 586.2 million in 2014. Ernst & Young (EY) predicts the number of customers going online to open an account in France will surge nearly six-fold to 17 million in the next ten years. In addition, there has been an increase in bank licences being issued to non-traditional banks in international markets. In the UK, for example, there has been a steady influx of licences issued since the financial regulators relaxed rules for new entrants in 2013, according to the Bank of England. Overall, there has been a shift in industry perspectives about the feasibility of launching new banking products and competing with the incumbents.

Fintech providers are benefitting from the global adoption of smartphones, which is growing at an extraordinary pace: today there are about 4 billion smartphone connections, nearly double the figure of three years ago^[3]. As consumers are increasingly using smartphones for many aspects of their lives, brands, tech companies and whole industries are finding they are required to innovate to stay relevant, and banking is no exception to this rule. In many cases, incumbent financial services players have been slow to adapt to the rise of the smartphones, opening up an opportunity for newer, more agile players, such as challenger banks or mobile operators wielding new technologies and innovative banking concepts.

Contents:

• Executive Summary
• Technology and regulation rock banking
• Recommendations and takeaways
• Introduction
• How consumer financial services is changing
• Smartphones drive fintech adoption
• New regulation to shake up payments industry
• Banks under pressure to innovate
• Orange Bank, a mobile-first proposition
• Incumbents’ response to Orange Bank
• Telcos’ track record in financial services
• The developing world
• The developed world
• Conclusions and Recommendations
• Orange Bank looks promising
• Telcos have multiple options in the banking market
• Recommendations and takeaways

Figures:

• Figure 1: Orange Bank provides customers with a breakdown of their spending
• Figure 2: Orange Bank is clearly differentiated from existing banking services
• Figure 3: Many reviews of the Orange Bank App are critical
• Figure 4: The global mobile money industry is still expanding quickly

[1] Fintech is defined by STL Partners as “technology that improves and disrupts financial services”, as outlined in Fintech: Definition and Landscape Overview, June 2016

[2] Frost & Sullivan, AI and Big Data Technologies Transforming Financial Services, September 2017

[3] GSMA Intelligence, 2017

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