Mobile revolution and evolution of business models pushed a growing number of telecom operators to sign agreements with banks to create integrated services for mobile users. It is possible that in the near future telecoms will become individual banks or even completely replace banks in the long term.
Strategic alliances between telecoms and banks are said to play a key role in building a new order on the telecommunications market. They can change the traditional world, in which telecom operators and banks had nothing in common. How did these two apparently different worlds come to meet each other and cooperate?
This cooperation has strategic underpinnings. Telecoms and banks have been merging in order to create integrated services involving mobile banking and mobile payments and use the synergies of common services. For telecoms, it is an obvious way to find new sources of income. In recent years, we have observed telecoms trying to sell IT services and cloud services. They continue to look for diversification of income in different markets and new methods for strengthening customer loyalty. Now is the time for financial services and telecom operators to cooperate. As telecoms do not have banking licenses, they need the agreements with banks to sell their products under the new logo. Even if in the beginning operators do not make big money from selling financial services, they can connect with new clients for many years.
The cooperation of telecoms and banks is also a part of the struggle for dominating the market of mobile payments. Mobile payments are presently a small part of the market. However, numerous companies in the banking, telecommunications, and retail sectors are fighting for the main position with own solutions. In Poland, one in four people have smartphones. Telecoms know this is a great opportunity for the development of mobile payments. They have millions of clients and access to their mobile devices, so it is their natural field of interest. They have numerous sales points, technological competences, and access to digitally unbanked people. This gives telecoms huge opportunities in the financial market. Banks deciding to merge with telecoms also reap benefits. The banking market is not easy – there is strong competition, and the struggle for clients has become very difficult. That is why banks are determined to expand the distribution of their services to increase sales, and to gain new clients. For banks, cooperation with telecoms is a new way to achieve these goals. Telecoms and banks together can offer a wide range of services and promotions. These can be services connected with mobile payments, loyalty programs based on geolocation, including offers like “the more you talk, the better loan conditions you will get” or “get a loan and get 1GB free Internet”.
There are many interesting examples of such alliances between telecoms and banks in very different regions of the world. The struggle both for dominating the mobile payment market and finding new sources of income is similar around the world. In Turkey in 2010 Garanti Bank and Avea signed an agreement to launch commercial NFC services in Turkey. The bank and the mobile operator planned to equip 100,000 customers with a smart device that will allow them to make mobile payments at more than 15,000 retailers in Turkey. One year later, the State Bank of India, India’s largest commercial bank, and Bharti Airtel, India’s largest telecommunications company, signed a joint venture agreement to make banking services available to India’s unbanked millions. The partners announced that they would offer banking products and services to the citizens in unbanked areas at affordable prices. In Latin America there were also examples of such cooperation. In October 2011 Citigroup and América Móvil have teamed up for a $50 million mobile banking joint venture, named Transfer, for services across Latin America. In May 2013 Spanish CaixaBank, Santander, and Telefonica signed an agreement to create a joint venture and develop a new digital business based on the latest mobile and communication technologies. The new company planned to start its activities with the development of an online community to manage offers, discounts, and promotions between business and clients.
Three months later, China Everbright Bank signed a strategic cooperation agreement with the telecom giant China Unicom to develop business in mobile finance. The partners said that they would first focus on a mobile payment service to facilitate near field and online payments. Their cooperation will also target financial smart card research and development in order to enable cross-sector services such as paying social insurance, utility bills or buying tickets for bullet trains. 2013 ended with one of the most interesting movements in worldwide telecom banking. Rogers Communications, Canada's largest telecom, received a banking license and announced its plans to issue credit cards, both plastic and mobile that will be stored on Rogers smartphones. The OSFI – Canada's banking regulator, granted the banking license to Rogers in May after nearly two-year application process. Rogers was the first telecom to enter the Canadian credit card market. In May 2012, Rogers joined forces with CIBC, one of Canada's largest banks. An agreement allowed CIBC credit cardholders to make NFC payments with Rogers smartphones. Rogers is among many telecoms that are not simply trying to cooperate with banks but also to become a bank. At the beginning of 2014, T-Mobile attacked the financial market in the United States with the Mobile Money service. First, the operator offered the services to the unbanked and underbanked. T-Mobile’s offering included a basic account with a pre-paid card and a mobile application.
The future of the alliance between banks and telecoms is not obvious. It seems to be win-win cooperation, but one cannot predict how this merger will unfold in the future. Even the abovementioned examples from all over the world do not provide a clear picture of the possible scenarios. For now, most operators choose a conservative model of cooperation with banks – they use bank experience and know-how and share the risk of new projects with them. Most partnerships have the following pattern – a telecom gives the brand, the customer base, the distribution network, and the infrastructure to create shared services. They also take part in decisions making on how new products and services will work and look like. Banks offer the banking license, know-how, experience on financial markets, and sometimes even the IT infrastructure. How will this cooperation change and evolve in the future? Telecom operators can apply for banking licenses and become individual banks, as Rogers did in Canada. This scenario can trigger the real war between partners. The second possible scenario is that operators and banks stay partners and telecoms will be efficient brokers of banking financial services. As Brett King says, ‘banking is not a place we go anymore, it’s something we do’. We are living in the era of a global war for dominance of the mobile payments. Telecom operators have many advantages on their side. But they still need banks as partners and innovative technology to win.
By Lukasz Luzar, Mobile Banking Solution Manager, Comarch