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.

Biometric payments to rock the world by 2024

Sceptics will turn their noses-up at the research, but as we increasingly drive towards a cashless society the trends are heading in the right direction.

According to findings from Juniper Research, biometric authentication will account for $228 billion worth of transactions by the end of 2019, before shooting upwards to $2.5 trillion by 2024. The biggest barrier to adoption, the presence of hardware on devices, will also be satisfied with the technology being embedded on 90% of smartphones by the same date.

“Biometrics has traditionally been used for in-person contactless payments,” said Juniper Analyst James Moar. “However, with an increase in the need for smooth authentication on all mCommerce channels, we anticipate over 60% of biometrically-verified payments will be made remotely by 2024.”

As it stands, biometric payments are a niche though in some markets, where mobile money is much more a standard, there is progress being made. There will of course be resistance to the introduction of new technologies, but eventually as more digital natives gain influence in society the concept of normal will be twisted and shifted.

Evidence for this is already present on devices today. According to Visa, 35% of smartphone users already use biometric authentication technologies as security for devices, primarily fingerprint or facial recognition, while some companies have also introduced vocal identifiers as passwords to access accounts. Banks and telcos have taken the lead here.

A decade ago it would have been deemed unthinkable for a user’s voice, fingerprint or face to be used as a password. Most would have assumed it was not secure enough, but then again contactless payments took criticism in the early years, and now look at how many people groan and moan when asked to input their PIN.

Interestingly enough, numerous studies have already indicated biometric authentication is more secure than traditional means. When you combine increased security alongside the convenience and speed of biometric authentication for payments, sceptics will start to pay attention.

There are niche trials focusing on biometric payments, Telia recently used biometrics in an ice-cream truck, though it does appear mainstream adoption of the technology might be here sooner rather than later.

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.

Bringing Internet to the Other Half of the World

According to data published by the International Telecoms Union (ITU), the United Nations agency overseeing the telecoms industry, 3.9 billion people, or 51.2% of the world’s total population, were already connected to the internet by the end of 2018. While the 50% mark was hit half a year earlier than the agency’s previous estimate, it nevertheless means that half of the world’s population remains unconnected.

Here we are sharing the opening section of this Telecoms.com Intelligence special briefing to look at the status of the unconnected and under-connected parts of the world and explores how the industry as well as the public sector can overcome the challenges to bring internet to the half of the world yet to be connected.

The full version of the report is available for free to download here.

Introduction: why half of the world is still unconnected

The low internet penetration is particularly acute in the developing countries. While 81% of the population in the developed world are already using the internet, only 45% in the developing countries can do so. Among them, less than 20% of the population in the 47 least developed countries, defined as “low-income countries that are suffering from long-term impediments to growth”, enjoy this luxury.

Source: ITU

There are three leading factors at play to leave a large part of the world off the grid. The first two are interlinked one way or another, the third is out of the telecoms industry’s remit. The most obvious one is pure economics. Diminishing marginal return or increasing marginal cost, often both at the same time, means operators will be less and less motivated to connect the next subscriber than the last. This could be down to the distribution of population. The more sparsely populated the location is, the less rewarding for the operators to reach them it becomes, because, even if the returns are assumed to be equal, the cost will be higher. This could also be related to the socio-economic status of the people. The less well-off the population is, the less attractive it becomes for operators to make the effort, because, even if the cost could be assumed equal, the return would be lower.

There are also technology barriers. Unfriendly terrains, for example mountainous areas, prove extremely challenging for operators to overcome. Related to the economic factors, these areas are also typically not the most densely populated. Satellite communication could be used as an emergency solution but would be too costly to use as regular internet access mode, or for operators to provide it if there is not a sizeable user base especially business users.

In some cases, the hurdle is simply too high for telecoms alone to clear. High internet penetration in North Korea is highly unlikely to happen in the near future without a fundamental change to the country itself, for example.

With these considerations in mind, this report will address the first two factors affecting internet penetration: economic and technology. Specifically, it will attempt to provide answers to these questions:

  • On the supply side, what technology solutions have been made available to drive down the cost level, therefore to make connecting the unconnected more appealing to telecom operators? What are still debatable or being desired? What business case do they present to operators?
  • On the demand side, what factors need to be in place for the unconnected population to be able to afford the connection, and to be willing to embrace it? And what are the factors beyond cost that may also drive the demand?

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The rest of this briefing includes sections on:

  • Supply side solutions: OpenRAN, TIP, and all that
  • The drivers for demand: affordability and more
  • What else should be in place?
  • An interview with Thecla Mbongue, Senior Analyst, Ovum

To access the full briefing please click here

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.

Amazon profits fall and its share price follows

Internet giant Amazon announced strong sales growth but that didn’t translate into profit after it invested heavily in one-day shipping.

The consequent significant year-on-year rise in operating expenses, combined with shrinking margin at AWS, where most of Amazon’s profit comes from, resulted in quarterly operating income declining for the first time in a while. While investors had been warned about the increased overheads, they were apparently even greater than expected, because Amazon’s share price declined 6% on the news.

“We are ramping up to make our 25th holiday season the best ever for Prime customers — with millions of products available for free one-day delivery,” said Jeff Bezos, Amazon founder and CEO. “Customers love the transition of Prime from two days to one day — they’ve already ordered billions of items with free one-day delivery this year.

“It’s a big investment, and it’s the right long-term decision for customers. And although it’s counterintuitive, the fastest delivery speeds generate the least carbon emissions because these products ship from fulfillment centers very close to the customer — it simply becomes impractical to use air or long ground routes. Huge thanks to all the teams helping deliver for customers this holiday.”

As you can see from the table below, Amazon’s total overheads were 14 billion bucks higher in the most recent quarter than they were a year ago. North America is still where most of its sales are and thus where most of the overheads come from too. Profits disproportionality come from its AWS cloud services division, but even there margins are significantly reduced year-on-year.

Amazon has spent its entire history sacrificing profit on the altar of investment, and that seems to have paid off. So it’s hard to read too much into the share price fall other than a realisation among investors that Amazon is serious about this one-day delivery stuff. That will probably pay off in the long term too, and we expect Bezos isn’t very bothered about the short term reaction to his grand plan.

Libra attempts to placate everyone else

Facebook’s Libra cryptocurrency has received almost universal push-back since its announcement, so now it’s looking for ways to placate its critics.

To say Libra has had a difficult start would be an understatement. Financial regulators in the US and Europe almost immediately sounded the alarm about the prospect of a new cryptocurrency controlled by one of the world’s dominant digital platforms. They were joined by many other concerned voices in both the public and private sectors and by last week it had lost its biggest allies in the electronic payments world.

This was far from an ideal background to the first formal meeting of the Libra Association, which gathered in Geneva last week, but on the plus side at least it sorted the wheat from the chaff among its initial backers. In the event 21 founding members decided to stick around and sign the Libra Association charter, which is definitely better than nothing.

In a subsequent banking seminar Libra project lead David Marcus told the assembled bankers that Libra was open to looking at a bunch of different options for what form it would take, suggesting they might make it a stablecoin pegged to a bunch of existing fiat currencies, rather than a true cryptocurrency like Bitcoin, that would be subject to similar volatility in value.

That’s being positioned as some kind of major concession to meet regulators half way, but from day one Libra was positioned as a stablecoin, so it’s not obvious how much has changed. The transnational Financial Action Task Force recently has a meeting about stablecoin an seems to be pretty nervous about even that, so it looks like Libra has a lot of obstacles to overcome before it can expect to start winning round its many critics.

Libra partners stampede for the exit

Visa and Mastercard are among a group of partners in Facebook’s Libra cryptocurrency venture to decide the whole thing is too risky.

It has been widely reported that internet payment platform Stripe and consumer trading site eBay have also bailed on the project, following PayPal’s decision to step away last week. The general theme of the reasons they give for pulling out is that they still like the concept, but the regulatory heat they’ve all been getting the project was unveiled is just too rich for their blood.

A couple of other factors, on top of the precedent set by PayPal, seem to have influenced the timing of the decision. The Verge reports that Visa, Mastercard and Stripe all got letters from a couple of US Senators last week, warning them of severe regulatory con sequences if they continue with Libra. In addition there’s a Libra meeting today, in which partners are supposed to formalise their commitment to the project, they were compelled to make a choice one way or the other in advance of it.

“Facebook appears to want the benefits of engaging in financial activities without the responsibility of being regulated as a financial services company,” said the most ominous part of the letters. “If you take this on, you can expect a high level of scrutiny from regulators not only on Libra-related activities, but on all payment activities.”

Having the two dominant global financial services providers pull out is obviously pretty bad news for Libra. It now faces the task of convincing them the threatened regulatory Armageddon won’t come to pass, which won’t be easy. David Marcus, one of the founders of the project, attempted damage limitation on Twitter, but all eyes will be on the outcome of today’s meeting.

 

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.

Telia toys with facial recognition for ice cream payments

In the ever-lasting search for 5G usecases, Telia has teamed-up with Finnish bank OP to trial facial recognition payment solutions.

While facial recognition technologies are taking a bit of a reputational beating at the moment, there are promising usecases in the pipeline. The issue which is not being discussed here, though certainly warrants more attention in the public domain, is the ethical, responsible and transparent application of the technology.

However, this example, authenticating payments, would appear to be a very logical application of the technology.

Firstly, biometrics are becoming increasingly normalised in payments and financial services authentication through fingerprints or vocal recognition, this is just one step further. Secondly, it is theoretically more secure than current identification and authentication techniques. And finally, banks already have trusted relationships with the consumer, and are yet to be caught up with a privacy scandal.

“Facial payment is a good example of a service that benefits from the capacity increase and lower latency of 5G,” said Janne Koistinen, Head of Telia Finland’s 5G programme. “5G will also take the security of mobile connections to the next level, which is interesting for example for payment and other financial services.”

Using the biometric template uploaded through a camera prior to the purchase with the customers bank, a connected device is used by the merchant to authenticate the individual. The customer then authorises the purchase with a simple click once their face has been recognised.

However, 5G would appear to be key here, largely thanks to the advances in lower latency which can be experienced. Slow service could certainly hinder experience and the commercial benefits promised.

“Besides security, a smooth user experience is important for customers,” said Kristian Luoma, Head of OP Lab. “5G makes the service faster and is therefore the perfect partner for Pivo Face Payment. We believe that the trial with Telia opens a new window to the future.”

Although fingerprints and vocal patterns are theoretically unique to each person, there are environmental factors which might hinder authentication. For example, dirt or grease stop the fingerprint reader from worker, or background noise could impact performance for vocal readers.

Facial recognition is also cheaper. Most smartphones or tablets already have a camera, so no specialist equipment needs to be built into the devices. The camera does not need to be high-end, just functional, therefore the expense is mainly on the software side. It is also a lot more accessible, in that everyone has a face and rarely covers it up when in a store.

For the moment, this trial has been limited to an ice-cream van in Vallila, though it is easy to see the wider applications in numerous different settings.

The challenge which such initiatives might face is the increasingly negative perception of facial recognition. This reputation the technology is working up is largely down to the unethical or secretive application in surveillance. This is a much larger topic which needs to be discussed in the public domain, however this initiative does demonstrate the benefits of facial recognition.