Lifestyle service aggregation: A revenue opportunity?

Lifestyle service aggregation for more engagement

Telcos have looked at Amazon Prime for years with envy – a subscription program which had 200 million paying Prime memberships in 2021 (the majority of which are in the US). One Morgan Stanley analyst estimated Prime households can spend up to $3,000 a year on Amazon – twice what a non-Prime household spends . Attracted by the free inclusive shipping offered, Amazon has since padded out the program with attractive features such as video and online storage for personal data such as photos. While features such as delivery are increasingly becoming more costly, these aggregated lifestyle services build loyalty through repeat purchases (and Prime renewals) and provides the company which a wealth of data on what consumers value.

By contrast, telcos’ customers often only interact with their service provider when they are purchasing a new device every two to three years, or when something goes wrong with their connectivity. To build value with consumers, operators need to find ways to engage and stay relevant in consumers daily lives, in the way that Amazon has. Telcos have been promoting their own and partners’ entertainment (content) services for many years – most operator websites have a “lifestyle” option alongside core connectivity services, directing customers to a range (five or six) mainly of entertainment services, or occasionally wellness services. However, achieving differentiation or competitive advantage selling the same individual subscription services is a challenge. Now operators are aiming to overcome this challenge by providing an additional layer of convenience to consumers by aggregating multiple digital and/or physical services into a single holistic package. The concept is not new, but the ability for telcos to curate a large selection of services and offer customers the ability to manage multiple subscriptions in one place has an appeal in today’s proliferating subscription economy.

The subscription economy went into overdrive during the pandemic, but as the cost-of-living crisis has hit, particularly in Europe, consumers have scaled back on their spending. In the UK, Barclaycard payments, which processes £1 ($1.23) in every £3 ($3.69) spent on UK credit and debit cards, reported 67% of households had signed up to a subscription in 2022 after a spike of 81% in 2021. While two-thirds of UK households still subscribe to a digital or direct-to-door subscription service, the average UK household is spending £41.70 ($51.23) a month on subscription services in 2022, down from £51.65 ($63.45) in 2021. This suggests that while the subscription economy remains valuable, consumers are seeking to get better value for money. In the highly competitive entertainment market, where consumers’ preferred content may be spread across multiple streaming platforms at different times of the year, operators can help consumers to manage multiple subscriptions and control their costs in a single location.

The chart below shows that entertainment is by far the largest subscription spending category for consumers in the UK. This trend is expected to be similar across most markets, and there is also potential for operators to expand their ambitions into a wider lifestyle aggregation strategy targeting other areas of day-to-day life.

Barclaycard Payments: Top UK subscription categories

Source: Barclaycard Payments commissioned research, June 2022

This report looks at a variety of lifestyle services across finance, commerce (food, cosmetics, clothing), entertainment and a range of household services such as energy, health, education which can be aggregated to deliver new revenue streams outside the traditional telco business. These new revenue streams also complement the telco business in terms of customer engagement/activity, lower churn and retention ensuring telcos can stay relevant in consumers’ lives. We explore three approaches to building lifestyle subscription aggregation services.

  1. Financial services and commerce: Operators such as KDDI, SK Telecom and Vodacom have sought to build on their financial services propositions to offer a wide range of commerce and lifestyle services to their customers, expanding revenues based on the volume of sales and transactions settled via their payments services and direct revenues from services sold within the lifestyle ecosystem. With financial services having a lower capital intensity compared to the traditional telco business, operators stand to earn a higher profit margin compared to the core business.
  2. Entertainment: Operators such as Optus in Australia and Verizon in the US are expanding their content and entertainment subscription offerings from a small selection (averaging approximately three to five) merchant subscription options to up to 20 subscription services, the majority of which customers can manage (add and drop) each month.
  3. Household service aggregation: Some operators such as MEO in Portugal, Japan’s Docomo and KDDI as well as Orange have sought to capitalise on their existing customer relationships to offer a suite of household services, encompassing insurance, energy and home security, as well as broadband, TV and telephony.

Table of Contents

  • Executive Summary
  • Introduction
  • Lifestyle commerce and finance aggregation
    • KDDI’s Life Design strategy
    • SK Telecom’s T Universe lifestyle subscription platform
    • Vodacom’s lifestyle and payments super app
    • Takeaways
  • Entertainment aggregation
    • Optus’ SubHub “super bundle”
    • Verizon’s +play “super bundle”
    • Takeaways
  • Household service aggregation
    • Altice Portugal’s MEO Care household support services
    • Docomo’s Smart Life services
    • Orange’s Protected Home service
    • Takeaways

Related research

Are telcos smart enough to make money work?

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.

Download the report extract

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

financial services

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:

Download the report extract