Welcome to the third instalment in our mini-series on the role of telcos in financial services. Our previous post covered four different business models that telcos employ to enter financial services, which leads us onto how to go about acquiring financial industry expertise and capabilities. More specifically, we’ll examine the options available to telcos to gain such knowledge, their pros and cons, and in which situation you’d want to pick one over the other.
As we’ve discussed in the first part of the series, mobile operators already have many of the necessary skills and capacities to run a scalable business e.g., marketing, CRM, etc. in-house. The missing pieces of the puzzle are other aspects of operating financial services like industry knowledge, technology and licensing.
Let’s dive into how we can remedy that:
Option 1: Buy
The way to acquire expertise is “simply” buying it via an acquisition of another service provider or system, e.g., a neobank. Examples of this approach are Orange, which acquired a majority stake in the insurance firm Groupama, and the leading Thai mobile operator AIS, which acquired a stake in Rabbit-LINE Pay to provide online payments.
Opportunities:
- You get a ready-made platform and customer base, which facilitates a quick product launch and exposure to new customers
- Specialised financial services capabilities and expertise
- Additional data for a more diversified and tailored offering.
Challenges:
- Strategy and priority alignment between the telco and the financial services unit
- Integrating technology, processes and personnel within the two companies
In terms of cost, acquiring a company is expensive but in the long run, access to existing infrastructure, technology and personnel may reduce the overall cost of entry and servicing compared to building a solution from scratch.
Option 2: Partnership
Instead of buying another company, you can gain access to expertise and capabilities via partnerships. Telcos tend to rely on two types of partners. The first type includes technology providers and fintechs, which provide access to platforms and IT that enable telcos to offer financial services products such as deposits, payments, lending, and card issuing. The second includes balance sheet providers, such as licensed banks and other financial institutions that can provide telcos with access to regulated licensing, risk services, funds, and other essential components of a successful financial services business. 
TrueMoney is a leading financial services platform based in Thailand built on partner capabilities and an extensive network of 88,000 agents
Opportunities:
- Faster rollout of new services and products
- Cutting-edge capabilities in financial services
- Cloud-based solutions enable scalability, reduce costs and future-proof technology
Challenges:
- Requires a careful vetting process to ensure strategy alignment and research on whether the partner will be able to provide the necessary support and capabilities to succeed in the highly competitive financial services industry
By outsourcing the operational aspects of financial services, telcos can focus on their core strengths, such as owning the client experience, managing customer relationships, and driving marketing. This approach creates synergies between the typical strengths of telco operators and the financial expertise of established providers, enabling them to deliver a compelling value proposition to customers. This collaboration between telcos and financial services providers can unlock significant opportunities for growth and innovation in the fintech space, helping both parties to stay ahead of the curve and deliver value to their customers.
Option 3: Build
While partnering with or acquiring financial services providers are common approaches for telcos looking to expand their financial services offering, there are still some that choose to develop capabilities internally. For example, Tigo Money, a mobile wallet provided by Tigo in Latin America was built primarily from scratch by assembling a highly skilled team of tech experts, constructing critical infrastructure, and strategically partnering with equity investors possessing complementary fintech expertise.
Opportunities:
- Full control over the business strategy, operations, decision-making, and integration with their existing telecommunications services
- Provides flexibility and lower costs over time
Challenges:
- Expensive!
- Requires significant investments in technology, infrastructure and personnel
- Longer lead times to launching new financial services offerings
- Risk of failure if telcos miss any of the knowledge or expertise gaps needed to succeed
- Risk of cannibalising existing telecommunications services if financial services offerings are not integrated properly
While there are pitfalls associated with building financial services propositions from scratch, telcos that successfully execute this strategy can create a comprehensive and valuable service offering for their customers.
Summary
Ultimately, telcos should carefully consider the benefits and drawbacks of all approaches before deciding which path to take. After all, operators are not limited to following one approach but can consider applying a combination of approaches, for example, by partnering with a fintech to offer card and payment solutions while acquiring a lending platform to complete its portfolio with credit facilities.
By Bulent Dal, Global Director of Strategic Accounts
