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.

WhatsApp making progress on WeChat emulation ambitions

Facebook has been promising some sort of payments solution for WhatsApp, and it seems to be making a bit of progress in Indonesia.

According to reports from Reuters, Facebook is in discussions with several potential partners to offer a mobile payment feature in the app in Indonesia. Although this is not Facebook’s first venture into mobile money, there is a stuttering initiative in India, the Indonesian experiment will focus on creating a digital wallet to tap into one of the worlds’ fastest growing eCommerce markets.

Earlier this year, Facebook CEO Mark Zuckerberg suggested to investors a wander towards mobile money was an ambition of the business, though this should actually surprise few. When you consider the success of Tencent-owned WeChat in diversifying the offering of the messaging app, Facebook is playing catch-up.

For those who haven’t used WeChat, what you can actually do is quite remarkable. The app was solely focused on messaging to start with, but now you can send images, make phone calls, peer-to-peer payments are included, as are in-store purchase via NFC and paying utility bills. Soon enough, cards could become redundant, such is the growing usage of mobile payments through digital wallets and WeChat.

If Facebook could capture a slice of this success, WhatsApp might start to begin paying off the $19 billion Facebook had to fork out during the acquisition.

The original purchase of WhatsApp was seemingly a means to capture a messaging application which was taking the world by storm. However, the data which WhatsApp would have offered the Facebook advertising machine would have been very beneficial. The team has found integrating the two platforms very difficult to date, though mobile money is certainly a way of creating additional revenues.

In Indonesia, the Facebook team is in discussions with several partners to tap into the eCommerce platform, though in India it is focusing on peer-to-peer payments in-app. There are several reasons for the differing approach, regulatory barriers being one, though experimenting with two ideas could offer two new features for a global rollout.

Interestingly enough, something which might get the White House twitchy is the alleged conversation with one of the potential partners; mobile payments firm DANA, which is backed by Ant Financial, an affiliate company of the Chinese Alibaba Group. Considering the current relationship between Washington and Beijing, these must be interesting conversations.

Globally, this is a very good move from Facebook. According to data from Sensor Tower, WhatsApp was the most downloaded application during the first quarter, with 223 million new installs, taking the total north of an estimated 1.5 billion users worldwide. This is a massive addressable audience, representing huge potential if the team can get all the moving parts to align.

A weak France overshadowed Orange’s Q1

The telecom operator Orange reported a flat Q1, with a weak performance in its home market partially compensated by the strength in Africa and the Middle East.

Orange reported a set of stable top line numbers in its first quarter results. On Group level, the total revenue of €10.185 billion was largely flat from a year ago (-0.1%), and the EBITDAaL (earnings before interest, tax, depreciation and amortisation after lease) improved by 0.7% to reach €2.583. Due to the 8% increase in eCAPEX (“economic” CAPEX), the total operating cash flow decline by 10.2% to €951 million.

Orange 2019Q1 Group level numbers.pdf

Commenting on the results, Stéphane Richard, Chairman and CEO of the Orange Group, said that “the Group succeeded in maintaining its high quality commercial performance in spite of a particularly challenging competitive context notably in our two principal countries of France and Spain. Our strategy is paying off since EBITDAal is continuing to grow while revenues remain stable, allo wing us to reaffirm our 2019 objectives”

On geography level, France, its home and biggest market is going through a weak period. Despite registering net gain in the number of customers, the total income dropped by 1.8% to €4.408 billion, the first quarterly decline in two years. The company blamed competition, a one-off promotion of digital reading offer towards the end of the quarter, and “a weaker performance on high-end equipment sales in the 1st quarter of this year”. The move to “Convergence” was positive, but not fast enough to offset the lose in narrowband customers. The competition pressure is still visible. The Sosh package (home broadband + mobile) Orange rolled out to combat Free is gaining weight among its broadband customers, which resulted in a decline of revenues despite the growth in customer base.

Orange’s European markets, including Spain and the rest of Europe, reported modest growth, with strength in Poland (+2.6%) and Belgium & Luxembourg (+3.8%) offset by a weaker Central Europe (-1.9%). The bright spot was Africa and Middle East, which registered a 5.3% growth to reach €1.349 billion revenue, taking the market’s total revenue above Spain and just marginally behind the rest of Europe. The company’s drive to extend its 4G coverage in Africa is paying off, with mobile data service contributing to 2/3 of its mobile growth. Orange Money also saw strong enthusiasm, with the revenue up by 29% and total number of monthly active users totalling 15.5 million.

Both the Q1 results and outlook to the rest of the year spelled mixed messages for the wider telecom market and Orange’s suppliers, but negatives look to outweigh positives. On the consumer market side, the slowdown of high-end smartphone sales and prolonged replacement cycle has once again been demonstrated in the weak numbers in France. On the network market side, Orange predicts more efficiency. This includes both the network sharing deal signed with Vodafone Spain, which is expected to deliver €800 million savings over ten years, and an overall reduction in CAPEX this year.

As the CEO said, “while the level of eCapex for this quarter is higher, it should reduce slightly for 2019 as a whole, as predicted, excluding the effect of the network sharing agreement with Vodafone in Spain announced on 25 April.” This means, to achieve the annual target of reduced CAPEX, the spending will drop much faster in the rest of year. There is no timetable to start 5G auction in France yet, but it will be safe to say that any expectations of 5G spending extravaganza will be misplaced.

On the positive side, Orange has seen its efforts to diversify its business gaining traction, especially in IoT and smart homes. But these areas, fast as the growth may be, only make a small portion of Orange’s total business.

Amazon Pay acquires app aggregator platform Tapzo

Amazon has acquired Indian app company Tapzo in a deal to bolster its digital payments offering.

According to the Economic Times, the deal will be valued between $40-45 million, while co-founders Ankur Singla and Vishal Pal Chaudhary will be brought onto the Amazon team to continue development of the offering. While the acquisition is yet to be confirmed by either party, sources state Amazon is after a shortcut to get in on the mobile money bonanza.

“It would have taken Amazon Pay up to two years to build an entire stack of service offerings to enable efficient use-cases for its payment platform,” one source familiar with the deal stated. “So this acquisition helps them save time and also enables them to spread their cashback offers across a host of services immediately.”

Tapzo is an aggregator platform that allows users to access over 35 apps including Amazon, Flipkart, Ola and Uber through a single screen, but also allows for mobile payments, to pay bills, order cabs and food and book flights and hotels. The most popular service for users to date has been bill payments and recharges, with about 15,000 transactions per month across the two services.

Integrating the Tapzo capabilities into the Amazon Pay business will offer the team plenty of ammunition as the battle for domination in the Indian payments market warms up. While there are several local firms are controlling market share for the moment, PhonePe and Paytm for example, the continued digital revolution in India is attracting the interest on the international scene.

Aside from Amazon, Google has also been carving itself a new revenue stream in India. Its Tez offering has recently been rebranded to Google Pay, and will start offering new services such as pre-approved loans.

Google rebrands payments app ahead of international assault

Google has announced it will rebrand its Indian digital payments app, Tez, to Google Pay as the team readies a launch into new international markets.

Only two years ago many would have considered India a distant, slow-follower of the digital revolution, with the economy still largely being governed by cash (imagine that) and smartphone penetration exceptionally low for its stature. The inspiration of Reliance Jio seems to have tempted the country into the virtual society, and the digital appetite of consumers has been almost insatiable. Not only have data consumption rates sky rocketed, the craving for digital services is clearly apparent.

Google is one of the companies which has benefited considerably with the desire to be digital. Having launched last September, Tez has been adopted by 22 million people in 300,000 cities, towns and villages across the country. During this period, Tez users have made more than 750 million transactions, worth more than $30 billion. The app currently supports 2,000 apps and websites, though this number is set to be supercharged, tying up with digital services such as Uber as well as offline channels including the likes of Big Bazaar, e-Zone, and FBB.

Aside from retail and partner push, the team will also expand to cover micro-loans. Partnerships with banks such as HDFC Bank, ICICI Bank, Federal Bank, and Kotak Mahindra Bank will enable customers to have pre-approved loans paid directly into Google Pay.

While these might seem like incredible numbers, the Telecom Regulatory Authority of India released figures recently suggesting there are 1.14 billion, with Android holding more than 80% of the market share. With only 22 million users currently, the potential for Google’s digital payment app here is massive. And this is only one country. Admittedly it is the second largest in the world by population, and one of the most lucrative when you look at mobile payment adoption, but the decision to rebrand the payment solution is with expansion in mind.

“We have learnt that when we build for India, we build for the world, and we believe that many of the innovations and features we have pioneered with Tez will work globally,” said Caesar Sengupta GM of the Payments business and Next Billion Users Initiative at Google.

“The world has certainly taken notice of India’s digital payments success and our deep investments here with Tez. Many governments are asking us to work with them to bring similar digital payments innovations to their countries.”

Google Payments already exists in 20 markets, though Tez is designed for the Indian market, and this seems to be what has interested the currently un-named governments. To launch a business on the international scene, it makes sense to have a single brand, and it would also be a smart bet to leverage one of the most powerful and influential brands worldwide; Google. According to Brand Finance, Google has the third most valuable brand worldwide, only falling behind Amazon and Apple, explaining the decision.

There might be some stories regarding misinformation and suspect privacy settings, but the Google brand is still one of the most recognisable and trusted worldwide. Ditching the Tez tag is a sensible idea.

Softbank and Yahoo team up to crack mobile money in Japan

Softbank and Yahoo Japan have announced the formation of a new joint venture, PayPay, to launch a QR-based smartphone payment services in Japan by November.

The joint venture will lean on the experience of Paytm, India’s largest digital payment brand and a SoftBank Vision Fund portfolio company, for technology and expertise in mobile payments in the latest efforts to move Japan away from a cash-based society. As it stands, less than 20% of payments across the country are cashless, one of the lowest worldwide for a ‘developed’ economy.

“The Japanese government is taking measures to raise the cashless payment ratio to 40% by 2025, with a long-term goal of 80%, the highest level globally,” Softbank said in a statement. “To aid these efforts, SoftBank and Yahoo Japan established PayPay Corporation in June 2018 and will launch its user-oriented payments platform in the fall 2018.”

With the experience of Paytm, the brand has 300 million customers and 8 million merchants, combined with the presence of SoftBank and Yahoo Japan, the PayPay business certainly has a promising to start to disruption. The Yahoo! Wallet which has approximately 40 million accounts, will act as the foundation, with Softbank leading the sales strategy, while also developing a localised service leveraging Paytm’s technology. Once the new service has been launched, Yahoo Wallet will cease to exist, though a time-frame has not been laid out.

While the adoption of this technology is far from given, the venture does demonstrate the power of the Softbank ecosystem. While it might have looked like a side-project to keep billionaire CEO Masayoshi Son busy, the Softbank Vision Fund offers a wealth of technology expertise for family members to lean on and launch new services. Of course, Vision Fund employees will be looking to find investments which will make money in the long-run, but complementary businesses and technology to aid the progression of current new services would certainly play some role in the decision making.

WhatsApp forced to enter India mobile money market early

The WhatsApp online payments trial received rave reviews in February, however the team is being forced to launch the market-ready version ahead of schedule for fear of being left behind by competitors.

WhatsApp first announced its intentions in the mobile money space back in February, trialling the feature with one million Indian users, though with more than 200 million users of the messenger app in the country there is certainly room to grow. According to Bloomberg, WhatsApp is readying the launch ahead of schedule, with only three partners instead of four, due to fears competitors are streaming too far ahead. HDFC Bank, ICICI Bank and Axis Bank are currently signed up, with the State Bank of India set to join as soon as the systems and processes are ready.

The potential for mobile and online payments in the country is massive. Aside from the rapid digital revolution which has been thrust on users following the democratization of data by Reliance Jio, the Indian Government is keen to take the country away from a cash-society. This focus on the digital world has certainly benefited certainly companies, some of which are less keen about sharing the profits around.

Vijay Shekhar Sharma, founder of Paytm Payments Bank, one of the two dominant players in the Indian online payments space as it stands, has been highly critical. Sharma was one of the beneficiaries of the government’s drive towards digital, and has not welcomed competition in the space. His Twitter feed regularly criticises the decision to grant WhatsApp a license, while also retweeting conspiracy theories about Facebook reading messages and stories questioning the security capabilities of the app.

The other dominant player currently in the market is Google Tez, though the WhatsApp team might be keeping a closer eye on WeChat. The Tencent-owned messenger and social media app has been making moves in the India space, and while it is yet to topple the dominance of Paytm, it arguably presents more of a threat. This is the reason Sharma is doing his best to limit the incursion of social media apps into the Indian payments market, he probably knows they will steal a lot of market share.

When WeChat launched its payment feature in the Chinese market as an alternative to Alibaba’s, it quickly captured market share because it already had an engaged user-base. Users could pay for a variety of products and services through a trusted and secure application, which was already being used for a variety of other features. WeChat kept users inside its walled-garden, and offered the opportunity to remove clutter and redundant apps from valuable real-estate on the home screen.

WhatsApp can replicate this strategy with its 200 million users in the Indian market. Ideally, WhatsApp would have launched on its own terms, but it does still pose a very serious threat to the incumbent players in the Indian market.

Aside from the upcoming conflict, this is one of the first examples of genuine diversification from Facebook, parent company of WhatsApp. To date, all the ‘alternative’ strategies Facebook has used to build the bottom line have ultimately led back to bleeding the same assets through digital advertising. Video does, news does, promotional ads do, everything Facebook does is about monetizing the user while they are on the platform. It is successful for the moment, but there will be a glass ceiling; only so much advertising can be presented to the user before the experience deteriorates.

When you look at the companies who are set to dominate the world for decades, there is genuine diversification. Google has a separate video platform in YouTube, doubling the real-estate for advertising, and also has a burgeoning cloud computing business. Amazon has the world leading cloud IaaS business, while also successfully entered the content subscription market with its Prime service.

Of course this is not a new idea. Coca Cola is a business which also diversifies by acquiring brands and products which allow it to target a different demographic; it owns Innocent Smoothies for example, as well as Powerade. Successful and healthy diversification is about seeking new revenue opportunities, not simply adding addition means to bolster the same advertising machine.

A successful launch into the online payments market could prove to be very lucrative move for the Facebook business.

London welcomes buskers to the digital revolution

Moving into the connected era has threatened the livelihoods of numerous individuals, but a new initiative from Busk In London and iZettle, backed by London Mayor Sadiq Khan plans to bring buskers into the digital economy.

Just like pigeons and pretentious coffee shops, buskers have become a staple of the worlds’ biggest cities, but like checkout employees in the supermarket, their very existence has come under threat. The connected era is all about digital payments and moving towards a cashless society, meaning the fame-chasing buskers were under threat of become penniless. This initiative, launched by Khan over the weekend, will aim to put contactless payment terminals in the hands of the performers.

A small number of performers have been testing the solution over recent weeks, though the scheme will now be rolled out across the 32 Greater London boroughs. The readers will need to be connected to a smartphone or tablet, while the donated amount will be fixed by the performer, and will be compatible with contactless cards, phones, and smartwatches.

“Now, more Londoners will be able to show their support to the capital’s brilliant, talented street performers,” Khan said.

The devices themselves will be provided by iZettle, which seems to have a head-start on Square in this area, though it is not clear whether the performers will have to pay for them up-front. Such devices are becoming more common for small businesses or street vendors, with PayPal recognising the potential for the technology. Last month, the tech giant agreed to acquire iZettle for $2.2 billion, allowing it to expand its presence in in-store payments globally.

Although there are still segments of society who are clinging onto physical cash, trends are heading down the digital avenue. According to data from Visa, contactless payments for transit and Transport for London (TfL) was up 97% over the last 12 months, while in Hong Kong transactions have tripled in the past 18 months, with one in three face-to-face Visa transactions is made via a contactless payment today. Canada is another country streaming ahead of global trends with Visa’s network processing 33 contactless transactions per second in the month of September.