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.