Study claims Financial Identity as a Service could add $250 billion to global GDP

A report published by Oxford Economics has looked into the implications of bringing into the financial system the millions of people currently excluded from it.

One of the key ways of achieving this is to provide these people with some kind of financial identity, something that is currently denied them by their inability to qualify for a bank account. It just so happens that the sponsor of this report is Juvo, which specialises in just that. Read into that what you will, but if the methodology is rigorous and transparent then the vested interest of the sponsor needn’t be an issue.

The kind of Financial Identity as a Service (FiDaaS) Juvo offers only really applies to developing economies as that’s where pretty much the financial exclusion takes place. Among individual countries Oxford Economics identified India ($7bn GDP uplift), Indonesia ($15bn), the Philippines ($15bn), Pakistan ($9bn) and Mexico ($31bn) as the individual markets most likely to benefit from this sort of thing. A lot of the rest presumably came from Africa.

The single most important thing unbanked people lack is any kind of credit score, so it’s very difficult for potential providers of credit to make a risk assessment, which means they usually won’t bother. The direct interest to the mobile industry comes from the ability to offer more punters postpaid contracts, or even micro loans for prepaid airtime.

“These numbers only capture a conservative estimate of this market’s true potential, since many more people are underbanked,” said Anubhav Mohanty, Lead Econometrician at Oxford Economics. “The sheer scale, depth and value of this opportunity is far greater than we’ve been able to quantify here.”

“For financial institutions and the mobile telecom operators they partner with, [establishing financial identities] represents a multi-billion-dollar revenue opportunity,” said Steve Polsky, CEO of Juvo. “And for the unbanked, it opens up fair and equal access to useful financial services that wouldn’t otherwise be available to them.”

While we think it’s unlikely that Oxford Economics was going to conclude that FiDaaS is a complete waste of time (or if it had, that the report would have been published), there’s little reason to doubt the desirability of bringing more people into the global economy. The mobile sector has been looking at ways of compensating for the failings of the banking system in developing economies for years and this sort of thing looks like it could help.

It’s now or never for telcos to unlock financial services

Telecoms.com periodically invites third parties to share their views on the industry’s most pressing issues. In this piece Steve Polsky, Founder and CEO of Juvo, argue that the telecoms industry is running out of time to claim a major stake in mobile financial services.

I’ve been in telecoms long enough to remember the early warnings that OTTs were going to eat the operators’ lunch. It became the pervading narrative 15 years ago. 10 years ago it started to happen. And it’s five years since the industry accepted the disintermediation of telcos as a reality.

Today we find ourselves on the edge of another industry-defining moment: will operators use their position to unlock access to financial services for the underbanked? OK, I’m slightly exaggerating. It’s not a truly existential issue. But, if operators get it wrong, then it can join ‘messaging’, ‘content’ and ‘the customer relationship’ as opportunities the mobile industry held in its hands allowed to slip away as a result of inaction. Operators must anticipate, or at least adapt to this wave while they still can. Resistance, as they say, is futile

Opening access to financial services is a big opportunity. It is worth hundreds of billions of dollars. It will change the lives of billions of people around the world. To date, I’ve been optimistic, hopeful and enthusiastic about the operator’s role. But over the last six months, I’ve started to become a little more pessimistic, doubtful and frustrated. I’m concerned that most operators are going to miss this boat.

What’s the opportunity?

Thanks to the World Bank, most of us understand that 1.7 billion adults are unbanked – literally frozen out of the formal economy. What’s less well-known is that at least 68% of adults (nearly 4 billion) around the world are underbanked. That means they have access to financial services in theory, but are excluded in practice. Think about that productive potential for one minute. It’s worth hundreds of billions of dollars in global GDP.

One of the main reasons these people are excluded from the formal economy is a ‘data’ problem. Put simply, they have no credit history. And as far as the financial services community is concerned, these people – all 3.9 billion of them – may as well not exist. There is such a paucity of data around these individuals that financial services companies cannot reasonably make even the most basic of decisions around allowing access to savings accounts, insurance or credit.

This data problem creates a gap in trust. Western society relies on data for creating and maintaining trust between enterprises (in this case, banks, insurance companies etc) and their customers. In developing economies there is no data, so there is no trust. The opportunity for operators is simple:

83% of adults around the world have mobile phones (Gallup Advanced Analytics). 71% of global mobile connections are on prepaid (Strategy Analytics, 2019). Operators can use the data from prepaid systems, apply machine learning and build financial profiles for the underbanked. They can offer low risk airtime loans to those that qualify to help customers to build a data-based credit history. They can then use that credit history as a basis for offering access to financial services both directly and indirectly (through financial services partnerships).

Who’s the competition?

Put simply, any alternative credit data provider is a competitor to telcos. But, in reality, no other entity can hold a candle to operators today. No one has access to financial and behavioural data like the telcos. Today, mobile operators are in the driver’s seat.  However, this is starting to change. Earlier this year Facebook announced the launch of Libra, an initiative designed to drive financial inclusion through the use of alternative data and crypto currencies in emerging markets. Libra is a direct threat to those few dozen operators that got mobile money right. But it’s also an indirect threat to every operator looking at the broader financial services opportunity – hundreds more.

Libra is important because it demonstrates that many companies – at launch Libra had more than 20 supporters from across the financial services value chain – are looking at driving profit from financial inclusion. 15 years ago, what we now call OTTs or ‘FAANGs’ were looking at mobile with the same commercial lust. And we know how that story ended.

While Libra has its own significant and high-profile challenges, its interest is real, its intentions are clear and its competitive threat is obvious. To my mind, the very existence of Libra should be enough to convince operators that now is the time to act. That now is the time to use the data and infrastructure they own to build the financial identities that the majority of adults in the world lack. That now is the time to partner with financial institutions to open up valuable, profitable financial services to a huge group of new customers around the world.

Who will win? And when?

While it’s hard to say who will win, it’s easy to see who starts off in the best position. While the FAANGs have strong and plentiful behavioural data, they don’t have financial data. That’s the ‘ace’ card here and that’s what operators are brandishing today – whether they know it or not.

Of course, the big tech firms are not going to sit still. While Libra looks set to spend a year or so wrangling with regulators before getting off the ground, you can bet that other big tech companies are looking at workarounds, for ways to access financial data. That’s why I see this as a race. That’s why I see this as something that is urgent. That’s why the decisions telcos make over the next 12 months will be critical to the value they accrue in the next 12 years.

It’s now or never

I don’t believe that mobile operators lack vision. I don’t believe that mobile operators lack ambition. I don’t believe that mobile operators lack capability. However, operators do lack time, focus and a willingness to partner with other industries. And that’s the killer in these situations. And so, it becomes a decision – and one that’s going to have to be made in the next year.

If operators want to play the pivotal role in helping to financially include more than half the adults on our planet, and to share in the positive social and economic benefits of this role, they have to make their move in the next 12 months. Many have. Many will. But many more won’t – and their businesses, and their stock price, will be judged on that basis. To my mind, the mobile industry will play a starring role in financial inclusion, and it will be incredibly well remunerated for it. But too many will miss out. And that’s a crying shame. It really is now or never.

 

Steve Polsky is the CEO and Founder of Juvo. Steve founded Juvo with an overarching mission: to establish financial identities for the billions of people worldwide who are creditworthy, yet financially excluded. With over 20 years’ experience, Steve’s career has centred on founding, launching and managing early stage technology ventures across the mobile and consumer internet sectors where, prior to Juvo, he was most recently President and COO at Flixster/Rotten Tomatoes.

Facebook can’t stop dabbling in financial services

Not content with trying to create a new global currency, Facebook now lets you pay for stuff through all its apps.

The new financial service is simply called Facebook Pay and it lets you use Facebook, Messenger, Instagram and WhatsApp to pay for stuff. This isn’t an extension of Libra, it should be stressed, and is more of a competitor to the payment platforms provided by Google and Apple on smartphones. Indeed Facebook’s biggest challenge is to explain to its users why they need yet another mobile payment platform when there are already so many to choose from.

This bit of the announcement tells us where Facebook thinks USPs can be found: “Facebook Pay will begin rolling out on Facebook and Messenger this week in the US for fundraisers, in-game purchases, event tickets, person-to-person payments on Messenger and purchases from select Pages and businesses on Facebook Marketplace. And over time, we plan to bring Facebook Pay to more people and places, including for use across Instagram and WhatsApp.”

In common with the Google and Apple equivalents, Facebook pay merely acts as a conduit for actual financial service providers like credit cards. The company seems to have identified latent demand for a more seamless payments experience when using its apps. Alternatively it could have taken a look at how huge WeChat is in China and decided it wants some of that action.

Facebook tends to copy rather than innovate and, when it comes to minor features, this approach seems to have served it well. Trying to recreate WeChat in the US, however, is a much larger undertaking and will require some degree of market education, which won’t be easy. Having said that the CCMI people seem to have similar ideas, so US consumers look set for a bit of a mobile revolution in the coming months.

Facebook’s Libra cryptocurrency coalition starts to crumble

Internet financial services giant PayPal is the first member of the Libra coalition to jump ship and probably won’t be the last.

When Facebook announced its audacious cryptocurrency ambitions earlier this year it derived a lot of its legitimacy from persuading a bunch of major financial services providers to formally back the project. Within days, however, regulatory authorities around the world expressed major concerns about the project and indicated they were unlikely to let it go ahead. Stories later emerged of some of the partners getting nervous about the amount of regulatory heat the project was getting.

Now this first of them has formally bailed on the whole thing, with PayPal notifying US media that it has decided to forgo further participation in the Libra Association before muttering about focusing on the day job. It also slightly hedged its position by saying it still thinks Libra is a great idea and it still wants to be friends with Facebook.

If the Libra Association’s response is anything to go by, PayPal’s hopes that Facebook won’t take this personally seem forlorn. The statement it provided to media started by opining that it takes guts to be involved in such an ambitious project and concluded by indicating that it’s pleased to be rid of any wimpy companies that can’t handle a little bit of adversity as early as possible.

That’s a good dig, but Libra should be careful what it wishes for. The coalition is a very loose one, with the members only having gone so far as to back the idea in principle, without committing to anything more substantial, so it’s very easy to bail out at this stage. Having said that, what did the participants expect when they announced their intention to create a new global currency? Of course there was going to be resistance and PayPal looks, at the very least, naïve for losing its nerve so quickly.

Apple credit card is up-and-running

As promised by CEO Tim Cook during the last earnings call, the Apple Card is set to debut this month, with the team already taking applications from consumers.

To start with, randomly selected Apple customers who signed up months ago have gotten access, though the team is now building a list of iLifers who would like to receive the card upon full-launch. To start with, the credit card will only be available to US citizens, though we can’t imagine it will be too long before the ambitious Applers spread their wings internationally.

For Apple, this is another step towards decreasing reliance on the iPhone, a product which has dominated the profitability column for quite some time. In the years of gluttony, few would have complained about this reliance, but nowadays, with smartphone shipments slowing down globally, the desire for diversification has intensified.

Working alongside Goldman Sachs, Apple has said customers can register their interest in the card in less than a minute, which perhaps seems irresponsible considering the seriousness of applying for credit. This little dose of reality will create little concern for either partner, both of whom will be relying on consumer over-indulgence to fuel profits.

That said, there are some interesting gimmicks being included with the service.

When using the card, all purchases will appear in the customers app, as is norm for the industry, but graphics will offer greater insight into spending habits. As you can see below, the distribution of colour on the card image and the graphs below detail how you are spending your money. Pink is for entertainment, yellow for shopping and orange for food, it is an interesting way to display purchasing patterns.

Apple Card

Other features include cash back and lower interest rates, though it is missing some of the perks which are so heavily hyped with traditional credit card providers.

What will be interesting to see over the next couple of months is the receptiveness of customers to a smartphone manufacturer entering into the financial world. Apple has one of the most admired brands worldwide and a cult-like following of customers, but whether this translates into something as important as financial services remains to be seen.

Prepaid market is an operator blind spot – research

Some new research commissioned by mobile financial services company Juvo has concluded operators are wasting loads of cash through prepaid churn.

The research was conducted by Strategy Analytics, which is having a busy day. It took a look at eight prepaid-dominant markets: Argentina, Brazil, India, Malaysia, Mexico, the Philippines, South Africa and Thailand; and concluded that in these markets alone, operators wasted $670 million last year replacing lost prepaid subscribers.

Otherwise known as PAYG or contract-free, the prepaid market probably gets a bit overlooked in developed markets as there’s nothing operators like more than signing someone up to a nice, fat two year contract. But as well as being a big piece of the action in developed markets, it tends to dominate developing ones.

Now, on one level remarking that churn is an issue in a market with no contractual obligation involved seems like a bit of a redundant statement. Of course punters are going to shop around and exhibit minimal loyalty. But the apparent point of Juvo commissioning this study is to show there are still plenty of things that could be done to efficiently reduce this churn.

It should also be noted that Juvo, in common with all other companies, doesn’t tend to just commission surveys for a laugh. It contends that what it has to offer can help operators with this prepaid lack of stickiness and has consistently messaged on the matter of prepaid churn. But that said, the findings of this study still have independent merit.

Prepaid accounted for 71% (5.7 billion) of global mobile connections and 32% ($265 billion) in service revenues in 2018. In developing economies those numbers move strongly in the direction of prepaid, for example is accounts for 94% of connections and 80% of revenue in Africa. SA also says it’s more profitable than you might think, with EBITDA margins of 40-55% in developing markets (apart from India, where Jio has thrown a spanner in the works).

SA Juvo 1

This background is designed to set up the punchline which is, of course, churn. The second chart below shows monthly prepaid churn of 3.1-6.5% across the countries studied. This equates to 37-80% annually meaning that, on average, operators have to totally replace their prepaid subscriber base every couple of years.

SA Juvo 2

“Until now, the industry has been in the dark on the scale of the costs associated with prepaid mobile churn, and the portion of prepaid OPEX spent on reacquiring the same customers,” said Phil Kendall of SA, the author of the report. “What this research allows us to do is to confidently calculate the profit that can be unlocked when prepaid churn is reduced. Success in the highly volatile, promotion-fueled prepaid market will go to those operators who can improve customer loyalty, allowing them to make strategic choices between OPEX reduction, accelerated growth or investment in service differentiation.”

“The market opportunity here is 5.7 billion customers and over $265 billion in annual revenue,” said said Steve Polsky, CEO of Juvo. “However it is hampered by huge churn and missed opportunities. As an industry, we need to talk about prepaid, we need to change our approach and we need to put identity at its heart. Prepaid customers in emerging markets consistently churn because they are constantly told ‘no’. No you’re out of airtime. No you don’t have enough money. We have to start with ‘yes’.”

The report, called ‘Death by a thousand nos’, offers a deeper dive into the prepaid churn issue, as well as some top tips on what to do about it, and can be downloaded from the Juvo website. With a major driver of the postpaid demand – the smartphone market – in significant decline, it seems likely that prepaid will become a bigger deal for all operators. So it’s probably a good idea to start thinking about how to make the most of it.

Square stands up for small retailers in the mobile era

US mobile payment processing outfit Square reckons its new stand will empower small businesses in a way that traditional financial services have failed to do.

Square was launched to much fanfare, thanks to being founded by the bloke who also founded Twitter – Jack Dorsey, in the US in 2009. The first product was a little dongle that you plug into the headphone jack of your phone that allows you to take card payments on it by swiping the magnetic strip.

None of that made it over here for a while though, with Square making its first appearance in the UK via a contactless card reader last year. We met Jesse Dorogusker, Hardware Lead for Square, and he explained that’s because they didn’t support Chip and PIN until then, with the US still reliant on the magnetic strip or even (shudder) those anachronistic carbon paper counterfoil things.

Now Square is adding a stand to its UK offerings, which is designed to support a tablet and turn it into an instant point-of-sale terminal. Before Square Dorogusker spent years heading up the accessories division at Apple and that influence is clear in the design of the stand and the card reader, both of which go hard on the smooth white plastic theme.

The whole bright idea from day one was to utilise all the powerful technology that was being put in people’s hands thanks to Apple and Android, to help smaller businesses get access to the latest, mobile-powered, financial services.

Dorogusker SquareThe barriers to entry for SMEs to get into modern financial services are too high and I would say that’s on purpose,” Dorogusker (pictured) told Telecoms.com. “The mainstream industry sees too much risk in serving small business owners and as a result they’re very underserved, especially in technology transitions where the introduction of additional ways to pay like contactless.

“The smartphone industry has done an amazing job of making incredibly powerful devices widely available at shockingly low prices for how technologically packed they are. We’ve built complementary pieces of technology that connect to these amazing devices and give consumer-grade experiences to small businesses.”

It’s hard to argue with the premise. Imagine the amount of sales lost by, say, stallholders at a music festival because potential customers have run out of cash. The Stand product also comes with point-of-sale software to use on the tablet and even a swivel base so the retailer can present the sale to the customer for approval. As advertised it give small businesses the point-of-sale power of much larger setups and that seems pretty compelling.

Dorogusker also thinks this is something the telecoms industry needs to be aware of. People have challenges with connectivity and we’re now in a world that requires an online connection to make a payment, verify it and issue a digital receipt,” he said. “A lot of networks are focused on peak speeds and not as focused on coverage. 75% of Square’s customers in the UK are outside of London, maybe not near a bunch of cell towers, and they need coverage – not ten bars, one bar will do.

The Stand product launched in the UK today and is on a half price promotion for a month. We’re now off to the street market on Tottenham Court Road where you can buy a delicious Thai green curry and rice with just a tap of a phone. Now that’s progress.