Reality and dreams of mobile finance

This article was authored by Jouko Ahvenainen, and was originally posted on telecomasia.net.

“M-Pesa is a great example of how money goes to the mobile, and telcos have a great opportunity to be banks in the emerging economies.” “Telcos are going to challenge banks in the emerging markets when services go to the mobile.” I have heard these sentences many times during the last 10 years. I would like to see something new and more concrete examples of telco forays into financial services. Is it just a nice dream? Or how will it become reality?

M-Pesa started in Kenya in 2007. It has been successful there and expanded to offer more services like Google Play support and overdraft facility. It has expanded to other countries too, including Tanzania, Lesotho and India, where it has seen success too. Vodafone has executed it also together with local banks. But the expansion hasn’t been easy and in many countries the service has struggled and closed.

M-Pesa was an excellent new service 10 years ago. But it alone doesn’t prove anything anymore about telco success in mobile money and payment services. Generally, there are not so many true success stories in this area. Several carriers have launched some mobile money or payment solutions, but we cannot say that telcos have got any significant role in this market. Ericsson and Nokia have also tried to offer platform solutions for this market. Nokia exited the market years ago, Ericsson has some clients for its mobile wallet.

At the same time, new payment, lending and other finance solutions are really emerging in emerging economies. For example, in Indonesia, Vietnam and the Philippines dozens of millions of people are outside finance and banking services. This is a huge opportunity for new mobile and digital finance solutions. But is it realistic to think telcos could compete let alone this market?

Telcos have played an important role in many services until mobile internet and mobile apps really came to dominate the market. Telcos encounter the same challenge if they want to enter the financial services segment. Many other parties already offer mobile apps for payments, banking, lending or money transfer. Feature phone market has been more secured to telcos (with M-Pesa originally especially an SMS based service), but there are also other platform vendors. You don’t need telco infrastructure to offer these services.

Payment services are still the easy part. Real banking services, lending and investing services are much more difficult to execute. They are heavily regulated, require capital and put also capital to risk. Telcos are not really willing or able to take these kinds of risks. There have been a lot of discussions over if Apple or Amazon would start banking services. They have huge balance sheets and they could link them to support their other businesses, but even they seem to hesitate.

Technically it is quite straightforward to implement digital finance services. There are platforms that offer the infrastructure and regulated services, like TagPay for feature phone payments, Difitek for digital and mobile banking, lending and investing services, and several mobile payment solutions from bar code models to blockchain. This means that technology is not really the bottleneck, but the mobile service company must fulfil the regulatory requirements and be able to operate finance business, including risk management.

It is a good question – if finance services are really relevant for telcos to offer. It might be that they are not really for them. But why there are still all these stories and speculations, how telcos could come to the finance business. Maybe it is lack of information, dreaming or too technology oriented thinking.

Probably the most feasible model for telcos to enter the finance business is with good partners that can offer the right technology, take the finance risks and offer the needed capital. Telcos have some interesting projects like the blockchain based settlement that could be expanded one day to global money transfers too. Telcos are not able to become real finance service providers, but they can be in an important role as part of consortia offering future digital and mobile finance services.

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