Telco consumer financial services propositions

Telcos face a perplexing challenge in consumer markets. On the one hand, telcos’ standing with consumers has improved through the COVID-19 pandemic, and demand for connectivity is strong and continues to grow. On the other hand, most consumers are not spending more money with telcos because operators have yet to create compelling new propositions that they can charge more for. In the broadest sense, telcos need to (and can in our view) create more value for consumers and society more generally.

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As discussed in our previous research, we believe the world is now entering a “Coordination Age” in which multiple stakeholders will work together to maximize the potential of the planet’s natural and human resources. New technologies – 5G, analytics, AI, automation, cloud – are making it feasible to coordinate and optimise the allocation of resources in real-time. As providers of connectivity that generates vast amounts of relevant data, telcos can play an important role in enabling this coordination. Although some operators have found it difficult to expand beyond connectivity, the opportunity still exists and may actually be expanding.

In this report, we consider how telcos can support more efficient allocation of capital by playing in the financial services sector. Financial services (banking) sits in a “sweet spot” for operators: economies of scale are available at a national level, connected technology can change the industry.

Financial Services in the Telecoms sweet spot

Source STL Partners

The financial services industry is undergoing major disruption brought about by a combination of digitisation and liberalisation – new legislation, such as the EU’s Payment Services Directive, is making it easier for new players to enter the banking market. And there is more disruption to come with the advent of digital currencies – China and the EU have both indicated that they will launch digital currencies, while the U.S. is mulling going down the same route.

A digital currency is intended to be a digital version of cash that is underpinned directly by the country’s central bank. Rather than owning notes or coins, you would own a deposit directly with the central bank. The idea is that a digital currency, in an increasingly cash-free society, would help ensure financial stability by enabling people to store at least some of their money with a trusted official platform, rather than a company or bank that might go bust. A digital currency could also make it easier to bring unbanked citizens (the majority of the world’s population) into the financial system, as central banks could issue digital currencies directly to individuals without them needing to have a commercial bank account. Telcos (and other online service providers) could help consumers to hold digital currency directly with a central bank.

Although the financial services industry has already experienced major upheaval, there is much more to come. “There’s no question that digital currencies and the underlying technology have the potential to drive the next wave in financial services,” Dan Schulman, the CEO of PayPal told investors in February 2021. “I think those technologies can help solve some of the fundamental problems of the system. The fact that there’s this huge prevalence and cost of cash, that there’s lack of access for so many parts of the population into the system, that there’s limited liquidity, there’s high friction in commerce and payments.”

In light of this ongoing disruption, this report reviews the efforts of various operators, such as Orange, Telefónica and Turkcell, to expand into consumer financial services, notably the provision of loans and insurance. A close analysis of their various initiatives offers pointers to the success criteria in this market, while also highlighting some of the potential pitfalls to avoid.

Table of contents

Executive Summary

Introduction

Potential business models

Who are you serving?
What are you doing for the people you serve?
M-Pesa – a springboard into an array of services
Docomo demonstrates what can be done
But the competition is fierce

Applying AI to lending and insurance

Analysing hundreds of data points
Upstart – one of the frontrunners in automated lending
Takeaways

From payments to financial portal

Takeaways

Turkcell goes broad and deep

Paycell has a foothold
Consumer finance takes a hit
Regulation moving in the right direction
Turkcell’s broader expansion plans
Takeaways

Telefónica targets quick loans

Growing competition
Elsewhere in Latin America
Takeaways

Momentum builds for Orange

The cost of Orange Bank
Takeaways

Conclusions and recommendations

Index

This report builds on earlier STL Partners research, including:

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Introduction

Across much of the world, the competing Internet ecosystems led by Amazon, Apple, Facebook and Google have come to dominate the consumer market for digital services. Even though most telcos continue to compete with these players in the service layer, it is now almost a necessity for operators to partner with one or more of these ecosystems in some shape or form.

This report begins by pinpointing the areas where telcos are most likely to partner with these players, drawing on examples as appropriate. In each case, it considers the nature of the partnership and the resulting value to the telco and to the Internet ecosystem. It also considers the longer-term, strategic implications of these partnerships and makes recommendations on how telcos can try to strengthen their negotiating position.

This research builds on the findings of the Digital Partnerships Benchmarking Study conducted between 26th September and 4th November 2016 by STL Partners and sponsored by AsiaInfo. That study involved a survey of 34 operators in Europe and Asia Pacific. It revealed that whereas almost all operators expected to grow their partnerships business in the future, they differed on how they expected to pursue this growth.

Approximately half (46%) of the operator respondents wanted to scale up and partner with a large number of digital players, while the other half (49%) wanted to focus in on a few strategic partnerships. Those looking to partner with a large number of companies were primarily interested in generating new revenue streams or increasing customer relevance, while many of those who wanted to focus on a small number of partnerships also regarded increasing revenues from the core business as a main objective (see Figure 1).

Figure 1: The business objectives differ somewhat by partnership strategy

Source: Digital Partnerships Benchmarking Study conducted in late 2016 by STL Partners and sponsored by AsiaInfo

Respondents were also asked to rank the assets that an operator can bring to a partnership, both today and in the future. These ranks were converted into a normalized score (see Figure 2): A score of 100% in Figure 2 would indicate that all respondents placed that option in the top rank.

Figure 2: Operators regard their customer base as their biggest asset

Source: Digital Partnerships Benchmarking Study conducted in late 2016 by STL Partners and sponsored by AsiaInfo

Clearly, operators are aware that the size of their customer base is a significant asset, and they are optimistic that it is likely to remain so: it is overall the highest scoring asset both today and in the future.

In the future, the options around customer data (customer profiling, analytics and insights) are given higher scores (they move up the ranks). This suggests that operators believe that they will become better at exploiting their data-centric assets and – most significantly – that they will be able to monetize this in partnerships, and that these data-centric assets will have significant value.

The findings of the study confirm that most telcos believe they can bring significant and valuable assets to partnerships. This report considers how those assets can be used to strike mutually beneficial deals with the major Internet ecosystems. The next chapter explains why telcos and the leading Internet players need to co-operate with each other, despite their competition for consumers’ attention.

Contents:

Executive Summary
Strategic considerations
Delivering bigger, better entertainment
Improving customer experience
Extending and enhancing connectivity
Developing the networks of the future
Delivering cloud computing to enterprises
Introduction
Telcos and lnternet giants need each other
Delivering bigger, better entertainment
Content delivery networks
Bundling content and connectivity
Zero-rating content
Carrier billing
Content promotion
Apple and EE in harmony
Value exchange and takeaways
Improving the customer experience
Making mobile data stretch further
Off-peak downloads, offline viewing
Data plan awareness for apps
Fine-grained control for consumers
Value exchange and takeaways
Extending and enhancing connectivity
Subsea cable consortiums
Free public Wi-Fi services
MVNO Project Fi – branded by Google, enabled by telcos
Value exchange and takeaways
Developing the networks of the future
Software-defined networks: Google and the CORD project
Opening up network hardware: Facebook’s Telecom Infra Project
Value exchange and takeaways
Delivering cloud computing to enterprises
Reselling cloud-based apps
Secure cloud computing – AWS and AT&T join forces
Value exchange and takeaways
Conclusions and Recommendations
Google is top of mind
Whose brand benefits?

Figures:

Figure 1: The business objectives differ somewhat by partnership strategy
Figure 2: Operators regard their customer base as their biggest asset
Figure 3: US Internet giants generate about 40% of mobile traffic in Asia-Pacific
Figure 4: Google and Facebook are now major players in mobile in Africa
Figure 5: Examples of telco-Internet platform partnerships in entertainment
Figure 6: BT Sport uses YouTube to promote its premium content
Figure 7: Apple Music appears to have helped EE’s performance
Figure 8: Amazon is challenging Apple and Spotify in the global music market
Figure 9: Examples of telco-Google co-operation around transparency
Figure 10: YouTube Smart Offline could alleviate peak pressure on networks
Figure 11: Google’s Triangle app gives consumers fine-grained control over apps
Figure 12: Examples of telco-Internet platform partnerships to deliver connectivity
Figure 13: Project Fi’s operator partners provide extensive 4G coverage
Figure 14: Both T-Mobile US and Sprint need to improve their financial returns
Figure 15: Examples of telco-Internet platform partnerships on network innovation
Figure 16: AWS has a big lead in the cloud computing market
Figure 17: Examples of telco-Internet platform partnerships in enterprise cloud
Figure 18: AT&T provides private and secure connectivity to public clouds
Figure 19: Amazon and Alphabet lead corporate America in R&D
Figure 20: Telcos need to be wary of bolstering already powerful brands
Figure 21: Balancing immediate value of partnerships against strategic implications
Figure 22: Different telcos should adopt different strategies

Tag: carrier billing

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