Why would a telecom operator diversify into banking? Because it is not just banks that face disruption from new internet services – the network providers themselves face challenges, according to Ramon Fernandez, deputy CEO – finance, performance and Europe at Orange, speaking at a recent presentation in London. “All existing players need to adapt or they may face extinction due to disruptive competition.” In telecoms, the threat is not that other players will come along and build out competing networks but that firms like Skype, which run over the top (OTT) of the network, will put increased pressure on the network provider margins. Fernandez describes Orange’s move into banking as “defensive and pre-emptive actions” and a way to “capture value from existing assets, free from the legacy [IT] concerns of traditional [financial services] players”.
Orange is not the only telco facing those challenges. According to research firm Gartner: “network-based communication service providers can maintain their competitiveness only by continually evolving their capabilities, technologies and business models. The margin for error is narrow, and hard decisions are required due to the accelerated pace of market transformation and intense competition from born-digital service providers.” Orange argues that its network is a “differentiating asset” that potentially puts it ahead of OTT firms. Its aim is to provide a “simple but complete” banking offer that builds, at least in part, on being a network provider.
Network operators have advantages
Will that make a difference? Network operators do have some advantages. Four UK mobile operators – EE, O2, Three and Vodafone – for example, will start using network data in 2019 to block phishing emails that purport to be from financial institutions. In the first instance, that service will be for banks, but it clearly has wider applications.
Paul de Leusse, the deputy CEO of Orange Bank, which was launched in France in 2017, says that they use network data to help manage banking risk. He did not want to specify what data is used, but said that it can help with risk functions such as credit scoring. “Telecom behaviour is an excellent predictor of credit risk,” he said, adding that the behaviour examined is not just about paying bills on time.
Orange is now due to launch Orange Bank Africa in Senegal and the Ivory Coast in 2019 and the company aims to breakeven in 3 years, twice as quickly as in Europe. This will build on the Orange Money mobile service (which uses the text message and agent model seen in M-PESA) that was set up in 2008 in the Ivory Coast and now serves 17 countries in MENA. There is, de Leusse points out, “a strong diaspora demand for remittance services”.
Services like Orange Money depend on strong local banking to support cash liquidity. Do African banks see a full banking service as a threat? No, de Leusse says because their simple range of products targets a completely different – and often completely unserved – segment.
Common payments system
Orange Bank Africa’s products might be simple, but its aims are not small. One project is to work with MTN of South Africa to create a common payments scheme called “Mowali”. This, de Leusse says, will be a “a visa or a mastercard for Africa” that is accepted wherever the partner network providers operate. Asked by “Financial World” whether Orange would work with Vodafone on Mowali, de Leusse said they will discuss the project with “all” telcos in Africa and that some are interested. He also said that if Chinese payment companies were to launch in Africa that the transparency of Mowali – in contrast to a wallet – would be an advantage – in particular in the cross-border remittance market.
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