NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Tuesday, April 28, 2015

These days everyone wants to create the next Uber for anything, and the word “disruption” is mentioned across boardrooms and management meetings in nearly all industries. But while discussing the true meaning of disruption and which fintech startups are worth keeping an eye on, incumbents are at risk of overlooking players that once were customers and partners that can quickly become new digital competitors.

Large retailers are launching their own consumer banks, payment services and credit cards based on customer data, brand loyalty and capital reserves in mature markets. At the same time, telecom operators are targeting the “underbanked” segments in developing countries through mobile banking. This makes perfect sense since one of the missions inside the fintech revolution is financial inclusion.

In the developing world only 41 percent have a bank account, but of the 2.5 billion people who have no access to a traditional bank, 1 billion have cell phones.

One of the most notable successes is the mobile-based money transfer and micro financing service, M-Pesa by Vodaphone and Safaricom. With 18 million customers and more than 80 000 agent outlets, M-Pesa has altered the landscape of financial services in Kenya, and is expanding rapidly in Tanzania. Since the funds are held by a trust deposited in several commercial banks, M-Pesa receives a lighter regulatory treatment than full banks, which allows a more agile business model than incumbents.

Telenor Group is another telecom operator that is getting heavily involved in financial services in developing economies. As one of the largest telecom operators in Pakistan, Telenor has also grown its money transfer service, Easypaisa to 13 million customers and reports that financial services account for 9 percent of Telenor’s total revenue in Pakistan.

Telenor also shows that telecom convergence in financial services should not be limited to mobile payments by offering mobile-based life insurance through a partnership with MicroEnsure across Asia. Chinese mobile operator Zong is also targeting the growing Pakistani insurance market by delivering accidental insurance in collaboration with AdamjeeLife Assurance Company.