Should Banks be Worried?
They should be terrified.
The fact is that it makes perfect sense for mobile operators to start thinking about offering banking products and services as we dispense with plastic and start using our mobile phones as payment devices. Increasingly, banks are being detached from the end consumer by a technology layer. Let me prove it.
PayPal reinvented the customer experience layer around payments, and in doing so set the benchmark by which Peer-to-Peer payments are made. Sure there are banks at the back-end of PayPal, but today I can take out my phone or get online and send you money and all I need to know is your email address or your mobile phone number.
Today, if a bank wants to allow their customers access to Mobile Banking they have to go through a layer of technology called an App Store (or Marketplace). A bank must ask Google, Apple or RIM for permission to have clients access their bank via a smartphone.
Are Telcos a Threat to the High Street Bank?
Well, yes and no.
If you look at broader offerings of financial service products, then mobile operators really don’t want to play in that arena. What most of the mobile operators are looking to do is play in the payments space, taking control of the wallet on your phone or offering pre-paid debit card type services.
In 2008 about 17% of the US mobile subscriber base were on prepaid deals, but since the GFC (Global Financial Crisis) approximately 65% of net new subscribers are prepaid users. In emerging markets like India and China 90%+ of the subscriber base is prepaid, and the same counts for sub-Saharan Africa, and broadly across Eastern Europe and Asia. So what does this have to do with banking?
Prepaid subscribers for mobile phones generally speaking are more likely to be at the lower end of the scale for retail banking (less profitable, underbanked) or even in the unbanked segments. These are customers who don’t have extensive multi-bank relationships, and who increasingly are moving to products like prepaid debit cards to facilitate their day-to-day banking needs.
So guess what happens when you combine a prepaid debit card with a prepaid mobile phone? It’s a marriage made in heaven! What’s the difference between making a telephone call, an ATM withdrawal or a debit card transaction at a merchant – they are all just transactions from a value store.
The key if you are working in the Telco sphere is to aggressively go after that marginal layer of customers that are underbanked, and promise utility that a bank can’t provide in the payments space. The combination of prepaid phone deal with a prepaid debit card will likely result in the loss of around 10% of the retail banking consumer market.
So What? We can Afford to Lose a Few Marginal Customers!
The implications for banks is that they lose touch day-to-day with customers, and the day-to-day retail front-end of banking becomes owned by telcos. The bank becomes the back-end manager of risk and the product manufacturer, with the lowest margin of the whole value chain.
Telcos are facing a whole new world of profitability and consumer interaction, if they are willing to diversify and embrace the mobile wallet.