I realised long ago that the telecommunications and finance sectors had a lot in common. They may not have thought so, as both preferred to go their own merry way in terms of revenue streams and business models. Banks saw communication service providers (CSPs) as customers, and pretty big ones at that. CSPs saw banks as, well, banks – somewhere to put their massive cash hoards and someone to turn to when finance was required, both short term and for big capital investment need to buy spectrum and infrastructure.
They also had a lot in common. Both industries were heavily regulated and their individual competitive environments were far from normal. They both evolved from primarily monopolistic government-owned entities into a quasi-deregulated regime that opened up their markets to newly-licensed competition. They were both very much service-centric and customers were simply seen and treated as buyers of those services.
Those traditional revenue streams have since come under threat, not only from others in their sectors, but outsiders offering new and lower cost products to their traditional customers. These over-the-top (OTT) players are able to offer low-cost, non-core products and services that are funded from their other activities and they have simply become disruptors.
Mobile network operators introduced pre-paid options to previously under-serviced customers and, in doing so, began to act like banks holding deposits in lieu of future service use. They are now active in m-Payment and m-Banking initiatives worldwide, often without any involvement of the finance fraternity.
Banks previously reliant solely on interest margins between borrowed and lent funds have had to resort to much lower transactional revenue models, charging customers for all the service they provide. They have had to implement real-time charging systems that not only price transactions as they occur but also price differentially depending the customer and his status or worth to the bank.
So, CSPs are acting like banks and banks are starting to price like CSPs. Do you get my drift? But it doesn’t stop there. Both are now shifting towards customer-centric models. Both want to tailor services at a personal level and they need very clever real-time analytics to do that effectively. Both want to provide multiple services to each customer to ensure ‘stickiness’ or by making a move to a competitor more trouble than it is worth. Both are willing to reduce margins on some loss-leader products in the hope they can recover those losses on more profitable services offered in a more personalised mix.
Most bank executives know they need to adopt additive and transformational banking models to meet their customers’ expanding expectations and to ensure revenue growth in volatile and increasingly competitive markets. Although the physical branch model of banking continues to be an essential channel for key banking services in traditional economies, the explosive adoption of mobile technology in both emerging and traditional economies have made mobile and online channels essential for cost-efficient service delivery.
At the same time, the global telecommunications industry is introducing disruptive new services in its product portfolio. Increasing mobile density, advanced network technologies and digitization of services are driving CSPs to develop innovative services. Establishing banking ecosystems through mobile technology is becoming a high priority strategy for many CSPs across all major markets.
Thus, the two industries are in sync, setting the stage for hybrid, innovative solutions delivering a range of banking services through mobile technology. Cross-industry convergence is here now and only firms with the ability to understand both industries will prosper. Are we going to see more CSPs buying banking licences, or will we see more financial institutions taking a stake in CSPs. Maybe we will see them working more closely together to ward off their common enemies? In any case, the systems required to drive the back-office for both are becoming much more alike and they may seek solace in what each does best, but by using a common platform to deliver.