Refine convergence of banking and telecom

Telecommunication companies and commercial banks have been converging for years. According to some sector experts, banks are witnessing greater competition from telecom operators, which are aggressively entering into financial services, especially in transactional lines of business. Therefore, there is a need to explore the opportunities for complementing each other to attain greater synergy.

Retail banks have been eager to push digital channels, such as fixed and mobile, as an important part of their operations, since they started offering services to their clients through the web almost 20 years ago. Today, all banks are facing the digital age with a broad set of solutions, from pure channel adaptation to radical changes in their business models.

In parallel, telecom companies have been adapting their customer relationships and converging communication and media offerings. They have been offering a full array of additional services to their clients, including financial services such as money transfer, payment or ticketing. However, this integration of financial services into the portfolio of telecom companies has been slower and less successful than expected.

Part of this non-dynamic convergence has been due to the barriers to entry to the banking industry, especially considering the deposit insurance system and regulation, control over flows of capital (payments) and capillarity of the branch networks. However, these barriers are vanishing for retail banks.

Traditional payments are being threatened by either P2P solutions or a myriad of mobile payment alternatives. Branches are losing their importance due to the adoption of digital channels – over 85% of customer transactions are now done via digital channels (ATM, computer or mobile) in developed countries – with smartphones gaining relevance as a key channel for banking customer interaction.

Consumers are eager to break the status quo of banks as the main provider of financial services. There is a growing impression that people will not need a bank in the future, as they prefer to get financial services from digital start-ups. In this context, telecommunication companies can be a formidable contender in offering financial products to their clients.

Telcos have stronger client concentration and bases – at an average client have relationships with one telecom provider, but almost three financial institutions. Telcos generally have larger customer bases than retail banks

They have broader client appeal due to their stronger and more mature marketing skills, resulting in advanced client management, bundled products and communication capabilities

In emerging economies, internet and mobile penetration are considerably higher than banking penetration, which provide telecoms with an edge for marketing financial products to their clients through greater reach.

Telecom operators do not suffer from the poor image of banking crafted after 2008-09, leaving space to attract customers in younger segments with an image of “banking without banks.” As a result, the convergence between banking and telecommunication is becoming increasingly dynamic.

Telcos have entered the financial services arena with transactional activities, such as payments or wallets, but do not yet have an offering that covers the full financing or savings needs of their clients. However, more digital-native clients have been adopting myriad apps and services from “non-bank banks” that threaten many of the traditional banking lines of business.

Thus, a range of opportunities has arisen for joint commercialization. For instance, in countries with lower banking penetration, a joint solution for transactional activity to the un-banked is feasible. There are multiple examples of strong collaboration between telcos and financial service companies to jointly commercialize their products.

Development of new joint business models Banks are interested in leveraging clients’ mobility needs as a source of advantage. As such, retail banks could either partner with telcos or enter the mobile market in order to exploit some of these new, convergent opportunities.

Benefiting commercially from customers’ transactional information considering the sizable amount of information that banks can control, analyze (big data/smart analytics) and input into geo-localization capabilities of smartphones to spur new business opportunities

Financing the increased device cost for consumers as a result of combined multi-screen communications and reduced product life cycles. Thus, banks are offering financing and insurance for mobile device.

Controlling the mobile digital channel experience as the main method of interaction – mobile phones will progressively substitute ATM and POS usage. Thus, controlling the customer experience (live chat) and integrated secure banking in semi-managed devices will be key differentiators for banking services.

Retail banks need to continue building customer-centric organizations that engage clients in social ecosystems with open Application Programming Interfaces (APIs) and consumer-based retail (branches, telephone service and digital channels) offering an omni-channel experience.

Retail banks in countries where branch capacity is smaller are leveraging technology, such as real-time communications networks, and increasingly delegating “last-mile” cash management and customer service functions to third-party retail outlets.

There is a need for an open innovation model with third parties, which implies that the transformation retail banks require is analogous with that telecoms achieved by partnering with third parties to remain innovative. Currently, much innovation in the telecom industry is now introduced via OTT and partners.

To achieve this transformation, banks will modify their technical ecosystems with open APIs, allowing third-party integration. It is crucial for successful integration that partners can easily be integrated and products can be developed through teaming-up efforts, while at the same time assuring customer and financial data confidentiality as well as technical IT security

This means that the bank’s IT architecture needs to be able to encapsulate all the relevant data exchange in a very controlled way, with enhanced authorization and authentication as well as data interchange-controlling and -monitoring elements.

Within these industries’ convergence, different approaches exist depending on the degree of partnership/competition and drivers for value creation. Even though the generation of financial products – assumption of risk, capital management and regulation – has remained the core responsibility of banks, telecom companies could play a disruptive role, especially for transactional activities, following their simpler product/service philosophy.

For further development into the financial world and broadening their offering, telcos will need to enter the banking space by acquiring bank licenses or small digital banks. Keeping in view synergies derived from partnership and the common threat from alternative solutions or disintermediation providers, telcos and banks should be seeking opportunities to partner and fully exploit these areas of convergence.

Check Also

Seaports as a Drivers for ‘Blue Growth’

Seaports as a Drivers for ‘Blue Growth’

The port, as an infrastructure of maritime services has evolved its functions over the years …

Leave a Reply