TIM follows Orange into the finance fracas

Telecom Italia and Spanish bank Santander have entered into a joint venture to offer consumer banking products to Italian customers.

The joint-venture, 51% owned by Santander and 49% Telecom Italia, will start rolling out financial services through TIM’s retail footprint in the coming months, beginning with financing plans for devices and progressing into consumer loans, credit and insurance in the future.

Like Orange in France, it appears TIM has spotted an opportunity to disrupt the traditional banking industry with a digital-native finance service for Italian customers.

Launched in 2017, following the acquisition of Groupama Banque, Orange Bank now has more than 500,000 customers, offering a full range of consumer banking products from current accounts to personal credit and insurance. Part of the success of this venture has been attributed to cross-selling opportunities created through the telcos retail footprint. The team aim to have 5 million customers by 2023.

Although diversification is a key trend in the telecommunications industry, the more drastic ventures have more often than not dwindled into obscurity. However, Orange Bank is the poster child of successful diversification, and it appears TIM wants to get in on the act.

Like Orange, TIM will start with simple financing products. Once the relevant authorisations and licenses have been secured, the team will aim to move into additional products such as credit cards and consumer loans.

Perhaps the most interesting element of this story is the potential for success. Digital banking services are becoming increasingly popular with consumers, especially with digital natives taking over society, though the traditional banking companies have been unable to most appropriately capitalise on the trend. Digital products and applications have been largely cumbersome, opening the door for digitally native alternative to gain traction.

Monzo, Revolut, Starling Bank and Doconomy are examples of companies who have adapted the financial services industry for the digital consumer, though there is still plenty of room for disruption. One thing which Orange has shown is that a trusted brand can be translated into a completely unrelated industry.

TIM is of course in a strong position in the Italian market with 31 million mobile subscribers and 7.5 million broadband customers, offering plenty of opportunity to cross-sell services. For Santander, it certainly offers an interesting opportunity to branch out into a market where it has no consumer presence currently. Should TIM and Santander be able to replicate the success of Orange it would certainly be welcomed by the battered financial spreadsheets at the telco.

Orange Bank is on a roll

Cutting through the noise at Mobile World Congress is a tough job but Orange’s play for the financial industry is certainly a good attempt.

After a successful venture in the French market, Orange Bank CEO Paul De Leusse gave us a brief run-down of future plans for the business. Spain is on the horizon, as is Poland, while the African markets are going to be given some more love.

“The aim of Orange is to build banks in every country we operate as a telco,” said Leusse. “We want a bank which benefits from the telco and brings benefit to the telco.”

It’s a bold ambition for the business, though there certainly is strong progress being made. At the end of 2018, Orange Bank had 248,000 customers, only 40,000 of which were Orange employees, while the synergies between the telco and the bank are very apparent. 150 of the telcos branches now have banking sales people, each of which can open more than 12 accounts a month. Compared to a traditional banking representative opening three or four a month, the numbers are encouraging.

Looking at where the telco benefits the financial business, the facts are somewhat surprising. Using telco data, Leusse claims he can take out the 30% of customers who represent 80% of the credit risk, while the insight on risk is more reliable than the data from the Romanian credit bureau. And of course, the benefits head the other direction as well.

Those customers who have both a banking and telco relationship with Orange are 15% more satisfied, while churn has been decreased. The Polish business has seen a 18% churn reduction, while Orange Money customers in Africa are 40% less likely to. Orange is a massive believer in the convergence business model, but this is taking the idea to another level.

Interestingly enough, fortunes could be greater on the road, with the Spaniards the next to get the banking dream.

Leusse pointed out the in Spain there is no need for the sales staff to be certified by the financial regulator, perhaps suggesting there will be a larger retail footprint. The Spanish market is digitally more advanced than the French, with customers more readily embracing the new normality of the internet.

According to research quoted by Leusse, 77% of Spaniards suggest they would happily do without a banker, while the number is only 51% in France. 66% of Spanish customers would also be open to being advised by Djingo, the telcos digital assistant, while this number is only 50% in France. Launching a bank in Spain could be just as a promising opportunity as France, maybe even bigger.

Orange plans banking profitability by 2023

With many commentators expressing doubt over Orange’s banking venture, it might come as somewhat of a surprise the team are planning to be profitable by 2023.

After launching the financial business last year, the company is collecting customers increasingly quickly and is currently in the planning stages of its pan-European assault. Spain is next on the list, but it is the profitability and larger revenue growth contributions to the Orange Group business which are capturing attention.

“The entry of Orange into the non-telco services, should be viewed as defensive and pre-emptive actions,” Ramon Fernandez, Executive Director of Finance, Performance and Europe at Orange told Telecoms.com. “It’s a key lever to stimulate growth beyond what the mature telco business can offer.”

This is seemingly how Orange is viewing the banking services. With profitability and growth in the traditional telco segments constantly eroding, any operator which wants to seek bumper returns will have to search elsewhere. In the Orange business, this has taken the form of cyber security solutions, entertainment, the enterprise cloud segment and finally, banking.

Mobile finance might seem like a significant step away from the traditional telco business, though there are common factors which all each to function and grow. This isn’t just a case of grabbing entirely new revenues, the convergence strategy is winning through again.

As it stands, the banking product in France currently has 200,000 customers, though ambitions are to have two million by 2026. Of those customers, 60% are opening accounts in the stores across France. This is a significant opportunity for Orange, as while there are certainly cross-selling benefits from telco to finance and vice-versa, the finance business does not exist without the retail footprint across the country. Fernandez described this as the ‘phygital’ world, which gives Orange an advantage over other digital challenger banks, of which there are quite a few in France.

That said, the retail footprint isn’t the only benefit. Brand awareness is now up to 45% thanks to the strong position of the Orange business in France, though the data which the banking team can lean on is critical. With services being launched in the loans and credit world, telco customer billing data can be used to understand the risk profile of customers. Identifying the right customers, with an acceptable level of risk, is key for the business and this is where the telco business can really drive benefits as well.

The important factor from a marketing perspective, which Fernandez and Paul de Leusse, the bank’s CEO, have been keen to emphasise is this is not being sold as a traditional bank; they aren’t selling a traditional banking relationship, they are selling the way to use a banking application on the phone. Orange doesn’t want to innovate on products, this is viewed as dangerous, but instead focus on user experience. AI is being pushed heavily, with digital interactions being preferred. This will mean not all customers relevant, but those who are demonstrate a desire for AI-interactions. de Leusse claims 45% of current customers prefer this route, and with a median age of 42, it isn’t just the digital natives who are adopting.

For the moment, the team are still in aggressive customer acquisition mode, this will continue through year two before a few years of stabilizing OPEX. Scalability is obviously critical here, and is set to start making an impact as the team has already negotiated a reduction in manufacturing costs for cards this month. This will make a notable impact on the launch of the Spanish finance business which will launch early next year with Romania to follow quickly afterwards.

This is where profitability will come from. By 2023, the team plan to break even, projecting revenues of €500 million with four million customers spread through seven countries. Only five of these countries will have a fully-functioning bank, though Orange Money services will plug the gaps elsewhere. While many telcos would shirk at the prospect of going into finance, Orange is approaching it as a convergence opportunity. The simplest way to look at this is regimented loyalty.

In years gone, telcos used to use the complicated process of switching providers as a means to enforce loyalty. With regulators now tackling this frustrating part of customer engagement, new ideas are needed. Convergence is one of those, as while there are pricing benefits to the customer, tying as many services as possible into one provider makes leaving a nightmare. If you were to take all of Orange’s services now, upon leaving you would have to search for providers for mobile, broadband, banking, entertainment and security. Having all of your bills in one place is nice when you’re happy, but leaving is a disaster; it is essentially enforced loyalty.

This might sound negative, and it is slightly nefarious, but this should not detract from an interesting and ambitious move from Orange. Telcos are searching for new revenues to compensate from the OTT assault, and this is proving to be a successful venture.

Legere casts wild eyes over to the world of banking

SEC-filings have emerged suggesting T-Mobile US is looking into creating a banking product for its customers which could be launched in a matter of weeks.

The documents, which have been filed by Customers Bancorp, describe a partnership which has been in place since September 2016, with the two parties coming together to build the relevant technology and products since. Details are relatively thin on the ground as it stands, though in naming T-Mobile in the documents it is a pretty sure sign of diversification from the telco.

With more customers showing readiness to adopt mobile banking solutions the idea does make sense. T-Mobile US is constantly looking for new opportunities to laud over the ‘duopoly’, as CEO John Legere describes AT&T and Verizon, so it should come as no surprise the team are looking for new ways to engage customers.

Although T-Mobile US would not be considered a challenger brand in the same way as Iliad in Italy or Jio in India, the shake-up of the business under Legere’s leadership has created a similar disruption. T-Mobile US has continuously boasted of collecting new customers with ease quarter after quarter, but such momentum can only last so long; new ideas are needed.

In India, Jio has diversified into content and also hinted at an assault on the broadband market, though T-Mobile US has resisted such pleasures to date. The introduction of financial services is simply another tool in the shed for T-Mobile US to maintain its current course. The last few Uncarrier moves have not been the earth shakers of yesteryear, though this would certainly capture the attention of the masses.

With a huge customer base, 73 million subscribers, and a sound relationship with said customers, churn was 0.95% during the last quarter, the foundations are steady. However, the big question is whether the T-Mobile US brand, led by the eccentric and wild Legere, can present itself as a business in which consumers would be confident in dealing with for their finances.

Banks do not generally present themselves as fun or charismatic brands mainly because dealing with an individual’s money is a serious matter. People will want their cash handled by a man who looks like a stereotypical accountant, not a 40 year-old frat-boy. This is perhaps one of the issues T-Mobile US will have to assess, as Legere does not give the impression of the most trustworthy banker.