Telcos’ roles in mobile banking – The top 4 business models and best practices

In the previous article, we talked about the opportunities the world of financial markets offers to telcos. Today, as there are several avenues to entering the digital banking world, let’s have a look at the different roles a telco can play, and examples of successful companies and their business models.

#1: The E-wallet – M-PESA

E-wallets (or digital wallets) are financial transaction applications that run on any connected device and securely store payment information and passwords in the cloud. Mobile wallets are a subset of E-wallets that are primarily used on mobile devices. 

E-wallets, specifically mobile wallets, are a natural starting point for telcos. Their strong mobile network infrastructure, technological expertise, large customer base, and wide-reaching agent network let telcos facilitate payments and transfers through mobile phones in areas with limited or no traditional banking infrastructure. 
 
One such area was Kenya in 2007. When Vodafone and Safaricom launched M-PESA, a mobile phone-based service for money transfers, payments, and micro-financing, it revolutionised the way people sent money, paid bills, and accessed other financial services.

M-PESA’s growth across Africa and beyond allowed it to expand its offering far beyond traditional payment facilitation. Examples include:

• M-TIBA, a digital health application and e-wallet that empowers customers to save for their health expenses
• Fuliza, a consumer credit overdraft facility to address the challenge of insufficient credit preventing customers from completing transactions
• M-Shwari, a bank account offering a combination of savings and loans allowing customers to save and borrow money through their phone
• M-PESA GlobalPay, a virtual card for payments on international websites and apps

Business Model #2: Growth from market niches – Celcom

Facilitating payments is not the only place to start. Some telcos have found growth opportunities by targeting niche segments within their existing customer base.  This approach allows telecom companies to identify gaps in the financial services market and offer tailored solutions to their customers.

Malaysia's Celcom, for example, has leveraged AI-driven microinsurance plans targeted toward underserved segments, such as low-income households and small businesses. These plans are affordable and accessible through Celcom's mobile app, making it convenient for customers to purchase insurance.  

Targeting niche segments of their customer base allows telecom companies to differentiate themselves from the competition by offering innovative solutions tailored to specific customer needs and expanding their financial services offering, digital infrastructure and customer base at the same time. 

 
Business Model #3: The telco neobank – Orange Bank

Neobanks are fintech companies that operate exclusively online. They offer financial services such as checking and savings accounts, payments, and money transfers, typically accessed through mobile apps and web platforms. Thanks to their lower overhead costs compared with traditional physical banks, neobanks can offer lower fees and competitive rates and are often sometimes referred to as “challenger banks”.

Telco neobanks bet primarily on a new generation of smartphone customers with different demands, providing them with bundled packages and discounts on their mobile plans and from other verticals.

One of the best examples of a telco neobank is Orange Bank. In 2017 French telecommunications company, Orange, acquired 65% of the insurance company Groupama and leveraged its license to transform the business into Orange Bank. As a fully digital bank, Orange Bank offers a range of banking services such as savings accounts, payment solutions, personal loans, and insurance. Customers can access these services through a mobile app or website, making banking with Orange Bank convenient and accessible from anywhere. Orange Bank has been successful in attracting customers due to its innovative offerings and low fees. In 2022, Orange Bank had over 2 million customers and bought a further 21.7% stake in the bank from Groupama to further strengthen its position. 

Business Model #4: The killer app – NTT Docomo

Our last business model involves integrating a variety of financial services propositions in an ecosystem of lifestyle and content solutions, becoming a one-stop shop for customers.  
 
A great example is NTT Docomo from Japan, founded in 1991 as part of the NTT Group. The telecom operator has made big strides in expanding its enterprise with its Smart Life business proposition, which includes wearable devices, smart homes, healthcare solutions, and more. The main drivers behind the success of the Smart Life business have been banking and payment services including its dCARD or dPAY services, which allow customers to pay with their smartphones quickly and easily at participating merchants.
 
Financial services are important to Docomo's Smart Life business because they enhance the overall customer experience and ultimately enable it to become a one-stop shop for its customers. In 2022, the Smart Life business generated ca. 17% of Docomo’s revenue with finance and payment contributing a large amount of growth. We hope you enjoyed this overview of how telcos grow through and within digital banking. Make sure to watch this space, because the next article will discuss the pros and cons of buying, acquiring, and building the required financial skills and expertise for telcos to succeed.