In 1992, IBM brought to market its first smartphone, the Simon Personal Communicator. It was a revolution then. The phone could be used not only to make calls but also to send a fax, email, and text. It cost $899 at the time, which in today’s value works out to approximately $1,435—almost the price of an iPhone 11 Pro Max. Interestingly, as opposed to the iPhone, the legendary Simon reportedly retained charge only for one hour.
The explosive progress mobile phones would make in the following years exceeded even the most optimistic of projections. Mobile phones have evolved from rudimentary novel devices to being an indispensable fabric of our society. They have changed everything—from how we interact to how we receive, process, and consume information. This change has spawned several other industries, including FinTech, changing how we access and consume financial services.
Mobile Meets Finance
The massive growth of mobile phones has also turned mobile operators into key drivers of growth and financial inclusion. It would be hard to imagine the existence of the financial system in its current form without acknowledging its heavy reliance on telecom companies. In fact, so intertwined are the two industries that the distinction between them is continually blurring. The key link between telecom and financial services is a host of FinTech companies. These digital-native companies are transforming access to financial services through product innovations, efficiency gains, and better consumer experience redesigned from first principles. Niche enterprise-focused FinTechs offer platform solutions for compliance, identity verification, and authentication.
Here are some areas that feature the combined strength of telcos and financial services:
Mobile intelligence can be a powerful proxy to trust. Because of the diversity and volume of digital data associated directly and indirectly with phone numbers, more and more companies are adopting them as superior identifiers to traditional identity verification sources. The tenure of a phone line, event history, frequency of usage, location, and usage behavior provide comprehensive insights into a consumer’s digital footprint. Since these signals are generated over a long period, they lend credibility to a consumer’s identity. Unlike legacy identity verification methods using traditional data sources, Phone-Centric Identity™ provides real-time identity authentication based on dynamic and current data.
One of the other key areas where FinTech and telcos demonstrate synergy is mobile money. One great example is Kenya-based Safaricom’s M-Pesa. The platform is quite simple and doesn’t even need a smartphone to work. It has been designed to work as a payment platform (both P2P and C2B), savings platform, lending platform, and government service delivery channel. So ubiquitous is M-Pesa in Kenya that the financial system and indeed the entire economy would choke in case of any extended downtime. M-Pesa has captured both the formal and informal sectors, and together with its parent company, Safaricom, it contributes 6.3% of the GDP.
Apart from creating standalone payment platforms, mobile networks have also evolved into payment platforms, allowing payments for various value-added services and e-commerce services to be charged to a phone bill. The global value of operator billing service (also known as carrier billing) is upwards of $29.8 billion. This simple payment method can be a great substitute for credit and debit cards.
Lastly, mobile operator-backed digital banks have created a hybrid between telcos and FinTechs. One great example is Orange Bank, an offshoot of the French telecommunication service provider Orange Telecom. It lends credence to the idea that FinTechs and, indeed, digital banks and mobile operators have many areas of intersection.
The FinTech industry and telecom companies are now inextricably combined. The future looks bright—it is time for regulators to find the modalities of making these two industries work together while having an eye on the systemic risk they may pose to the financial system. Indeed, some FinTechs have far outgrown even mainstream banks, such as Alibaba’s Ant Financial, forcing the Chinese government to take extreme measures to reign it in. The benefits of collaboration between these industries have created great convenience and better value for consumers.