Telecoms Have Unique Chance to Monetize 1 Billion Unbanked Cell Customers

One billion people have cellphones but no bank account, a gap wireless providers may fill.

There’s nothing farfetched about the idea. It’s already well-established in emerging nations, where mobile network operators (MNOs) and one’s mobile device are the conduits for digitizing cash to enable electronic bill pay, money transfers and cross-border remittances.

In a PYMNTS On the Agenda® discussion, i2c President Jim McCarthy said that since the pandemic, use cases for telcos’ money movement “are really ringing through. It’s digital banking writ large, but with players such as Apple or Google in developed markets or telcos in emerging markets.”

This is spelled out in the new report “Telecoms’ Emerging Role in the Payments and Banking Field,” part of The Telecommunications Payments Tracker® Series, a PYMNTS and i2c collaboration.

“Telecoms and FinTechs have collaborated for years, with the latter providing the former with useful data that helped them build their business,” the report stated. “Key partnerships with card companies, FinTechs or [financial institutions (FIs)] could also allow telecommunications companies — and [MNOs], in particular — to transform access to financial services through innovation and improve financial inclusion globally.”

Direct carrier billing is a common way of paying for digital and even physical goods in parts of the world. And McCarthy noted that “mobile access, mobile services are lifeline services. For those at the bottom end of the socioeconomic value chain, they spend quite a bit of their income on these services because it is a lifeline function for them, and a very important one.”

The Bank in Your Hand

With digital banking apps one of the most used services in developed markets, there’s a logic to taking it a step further and using mobile as a payments rail.

McCarthy noted that our relationships with “whatever device you have in terms of where you are, who you are, identity services, both implicit and explicit, providing discrete identity or using the breadcrumbs that my digital footprint leaves as an implicit identity, go to the heart of the relationship I have with my telecom provider through my device.”

So, the question isn’t can it be done, because mobile is already deeply embedded in the payments ecosystems of nations like Kenya where the M-Pesa system has been in use for years.

Mobile “is the way that we consume more and more of our daily activity, and certainly payments are at the heart of commerce,” he said. “All roads continually lead back to the mobile device and the telecommunications industry as a key provider of financial services.”

Is that keeping the J.P. Morgans and Citis of the world awake at night? Probably not.

“I think unfortunately for the telecommunications industry in the United States, the market has shifted,” McCarthy said, noting that while there are many carrier choices, consumers’ mobile relationships are defined by their device, and just two operating systems: iOS and Android.

It’s a teachable moment that may have fewer implications for developed nations because, as McCarthy put it: “The ecosystem for ignition existed in those environments more so than for the telcos,” which are up against some 9,000 banks and credit unions.

This is not to say it can’t happen here, just that it’s unlikely to take the market by storm as the next big thing in payments in places like the U.S. and western Europe.

Emerging markets are a different story, where he said “you oftentimes have one telco that has more subscribers than all the banks combined in terms of their customers. As a result, the telcos still have a very good foothold in kind of the banking side of the relationship.”

See also: Grupo Popular, i2c Launch Dominican Digital Banking Platform

Sizing up the Opportunity

As analyzed in “Telecoms’ Emerging Role in the Payments and Banking Field,” telcos still have an opportunity to give FIs a run for their money, even in parts of the U.S.

Large swaths of the U.S. are underserved, and more so in emerging markets.

“So, the telcos have a great position because as I said, the steppingstone into the financial ecosystem is oftentimes through that first device, that existential device, that mobile device,” McCarthy said. “If you can establish your footprint with that segment of the population as a telecommunications provider, I think you have a good opportunity to expand the relationship.”

The report called out Ethiopia as a case study in telco banking, where state-owned telecom provider telebirr recently disclosed that its mobile money service has gained over 21 million subscribers since 2021 and has processed the equivalent of $490 million to date.

It makes sense to McCarthy, who said in these pockets “the mobile device is the only device. You don’t find bank branches on every corner” like in a U.S. city, “but what you will find are mobile network operator agents that are taking cash to prepay the mobile phone plan. They effectively act as bank branches where they can take excess liquidity from those same consumers” and allow them to perform a slew of banking functions.