Banks must "follow the money" and partner with digital platforms and superapps, not telecoms
Banks and telecoms are "dumb pipes."
Banks turning to telecoms for embedded finance is the wrong strategy in a world ruled by digital platforms and superapps.
The GSMA, JPM and IBM make the case for banks to interact with Communication Service Providers (CSPs) aka telecoms, to boost their embedded offerings.
Their advice seems to ignore that most telecoms struggle to go beyond providing connectivity to their customers.
👉TAKEAWAYS
Why on earth would banks target telecoms when, in most cases, mobile operators are “dumb pipes” in that they provide data but few value-added services?
Telecoms struggle to provide financial services to their clients with a few exceptions, like Kenya’s Safaricom’s M-PESA and Thailand’s True.
The best examples of how telecoms lost control of customers’ wallets are super apps like WeChat, Alipay, MarcadoLibre, and Grab, which have little interaction with mobile operators.
Digital platforms like Amazon or Lazada are also telecom agnostic.
This isn’t to say that telecoms aren’t trying, and in Africa, the connection between telecom and payments is much closer; in some cases, competing with banks.
IBM, JPM and the GSMA suggest that banks can embed: payments, banking, and lending on telecom platforms, but why would a bank go to a telecom when the action is on digital platforms and superapps?
👊STRAIGHT TALK👊
If you were a bank and you had to pick a partner for embedding financial solutions, would you pick a mobile operator providing connectivity or a digital platform or super app where the actual transactions take place?
The answer would seem obvious: The bank would want to follow the money and be on the platform or super app, right?
Banks and telecoms are examples of what many in the industry call “dumb pipes.” It's a sarcastic term if there ever was one!
The term suggests that both are mere conduits for money and data without providing significant additional value. That is why the concept of these two “dumb pipes” helping each other is akin to the old saying of “the blind leading the blind.”
There are exceptions where telecoms are sophisticated and might make great partners for banks, but these are not necessarily the norm.
I don’t entirely dismiss the concept that telecoms and banks can partner, but banks should “follow the money.”
That means banks should avoid “dumb pipe” telecoms and get closer to digital platforms and super apps.
Thoughts?
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