Currently, the telecom industry is facing new opportunities and challenges presented by a dynamic regulatory, technological, and competitive environment. These trends are shaping the telecommunications industry, from more competitive broadband markets to cyber security in the 5G era. The telecom sector continued to make progress in augmenting its network capacity with additional fiber and wireless deployments to meet the constant demand for higher-speed networks. The potential for more competitive broadband markets. Faster mobile and fixed wireless connections create more viable alternatives to wired connections and new opportunities for bundled service offerings and business models for service providers. With ever-expanding options for high-quality communication and internet services from telecom, cable, wireless, and satellite internet providers, consumers will enjoy enhanced flexibility in purchasing and consuming services in the coming years.
In the third year of a global pandemic, the financial services industry appears to be acclimating to a new reality. Many temporary measures put in place are now poised to become permanent, and a new industry structure is emerging. While the industry may have averted a major crisis, it is still underperforming its pre-financial crisis levels. It has lagged many other industries—and a host of new competitors—in several dimensions, including financial performance, customer experience, and embracing new business, operating, and collaboration models.
Retail banks have been eager to push digital channels, such as fixed and mobile, as an important part of their operations. 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 or converging communication and media offerings. With such an ambition they’ve 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, as Lack of clear regulation for small cash accounts, facility of client usage and value-added services (Personal Finance Managers) support the development of mobile wallets, which enables telecom operators to offer a more convenient deposit solution than retail banks Traditional payments are being threatened by either P2P solutions or a myriad of mobile payment alternatives n Branches are decreasing in 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 Furthermore, consumers are eager to break the status quo of banks as the main provider of financial services. 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 telecoms or enter the mobile market as MVNOs 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 acting as MVNOs could offer financing and insurance to for mobile devices and Integrating into direct carrier billing, covering commercial and financing charges, which would facilitate client comprehension and value-added services (e.g. PFM, fraction payment).
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
The Telecom operators and the banking Industry have been converging for years. As remaining barriers vanish and extrinsic factors push further convergence, banks will see increasing competition from telecom operators, which will aggressively enter into financial services, especially in transactional lines of business.
In the past twenty years technological advances and regulatory changes have not only altered the banking and telecommunications industries, but have also brought the two industries closer together. Many banking institutions now provide telecommunications services, while some telecommunications companies provide financial services. Banks already lease some communications line capacity to other users and extensively use telecommunications systems to provide automated teller machines (ATMs) in locations far removed from bank branches. Telecommunications companies offer such traditional bank services as issuing and processing credit cards.
The key to the competition between banks and telecommunications companies has been the convergence of computers and telecommunications. Technological advances have made it possible to provide computer services over networks where data can be transferred and processed at locations separate from its collection or production. These technical capabilities have led to an emergence of special non-common carrier providers of Value Added Networks (VANs). VANs are communications networks that add value to transmitted data, usually by providing processing services. These providers use existing networks, or create new ones, to provide customers with information services ignored by the traditional telecommunications industry.
Banks and financial services companies have been major players in the telecommunication sector for many years. Even with the regulatory problems that hinder them, banking institutions have been offering new services and features to improve the efficiency and convenience of their business. Banking is no longer defined by an individual customer conducting business through a teller; it is now characterized by a system of electronic transactions conducted over computer networks from points around the globe. Today, 60% of banking transactions occur outside bank branches.
Leading financial institutions are creating their own bank-led ecosystem business models to serve attractive market segments, while deeply integrating their products and services with other companies’ well-established platforms. End-to-end digitization. Embrace end-to-end extreme digitization to reshape operations and drive innovation. To win the race to all things digital, financial institutions are adopting new ways of exploiting exponential technologies such as automation, hybrid cloud, and AI. They drive digitization across internal business units and their ecosystem of external partners while helping ensure security and compliance. – Operational resilience.
An array of tightly coupled applications running on heterogeneous technologies can limit banks in their ability to adopt these new technologies and undertake end-to-end transformation. To propel progress, they need to re-imagine their business architecture. It needs to be based on the interoperability of computing environments and the secured portability of micro services and containerized solution. To accelerate digitalization, financial institutions should adopt an architecture-led transformation combined with re-imagined workflows and operating models.
Before the pandemic, expectations were that ongoing digital development objectives would take a decade to complete. In the wake of the pandemic, they occurred in less than 18 months. To cope with their challenges, banks adapted new operating models and extended cloud access, and in doing so realized the benefits of greater connectivity. At the same time, they accelerated their data and analytics innovation initiatives to bolster risk and compliance programs. This reduced the isolation of organizational siloes inside the firms and led, in turn, to new opportunities for intelligent automation. Ecosystem alliances of internal and external partners have played a central role in enabling intelligent workflows that boost organizational resilience. Consequently, critical business processes have been strengthened. For instance, when compared to an on-premises environment, a central anti-money laundering (AML) repository in the cloud makes AML controls and workflows more efficient.
However, digital acceleration, the reconfiguration of computing environments, and expanded workforce access have also yielded unintended consequences. Chief Risk Officers (CROs) and regulators are increasingly aware of novel interdependencies that prompt concerns of industry-wide operational stability. The industry’s reliance on cloud hyper-scalars only intensifies these concerns. Proactively remediating any outage of clients’ access to funds and services to avoid reputational risk and regulatory action is now a top business priority. Workload portability, avoidance of “lock-in” with cloud access, and rapid recovery from service interruptions are at the forefront of business decisions. Boards rightly view cloud technology as a strategic driver and enabler of further business performance and shareholder returns. But when considering cloud migration and digital transformation, CROs, in partnership with technology and compliance leadership teams, can help keep a sharp focus on resiliency by identifying attendant risks and potential remediation.
Today, the banking industry is at a crossroads. Change in the industry is inevitable, and the direction of that change may well transform banking in the United States into something wholly different from what exists today. With technological advances, banks are able to serve their customers more efficiently. The banking industry has invested billions of dollars in new technology and has gained the capability to provide services well beyond the traditional, narrow sphere of financial services. New computer and telecommunications technology has also made it possible for new competitors to provide banking services. Telecommunications companies, realizing that modem banking is merely the moving of electronic transactions from location to location, have entered the financial services industry to capitalize on their networking and computing strengths. Telecommunications regulations have changed dramatically in the past ten years and have encouraged new competitors to challenge the banking establishment. With the dramatic changes occurring in other industry sectors, the bank regulators have maintained a surprisingly slow and plodding course, keeping to the same regulatory path that they laid out half a century ago. Despite new competition entering the banking field, banks have not been allowed to meet that competition by entering new business areas and expanding their customer base.
The bank regulators have instead consistently maintained that diversification would be an evil that the industry should assiduously avoid. The question for the future will be whether banks can continue to exist as their core business sector becomes more competitive and they are prevented from expanding into new areas. The present course is by no means the only regulatory path that might be taken. The telecommunications industry has reformed itself to handle new competitors, and banks have invested money in the technology necessary to compete in the field. Telecommunications is a natural area for the financial services providers to enter.
The author, Nazir Ahmed Shaikh, is a freelance columnist. He is an academician by profession and writes articles on diversified topics. Mr. Shaikh could be reached at [email protected]