Mobile Money Fragmentation (Telcos / Banks) Breaks Mass Market

In a world where each nation uses its own currency which could not be exchanged, global commerce would stall. But if one or even two currencies were introduced, which were accepted globally, international commerce could resume.

Using this analogy, we argue that fragmented industries (Telecom Companies / Banks) fundamentally cannot successfully launch global m-payment systems as by definition they are too regional. If consumers want to make a purchase or transfer through a mobile, they don’t want to discover their m-payment mechanism isn’t compatible. Therefore, we believe that a sustainable, long-term m-payment application will require a critical mass comparable to the number of iPhone (600m) or Android (1.9bn) users and consequently feel that a non-fragmented industry, such as technology, is best placed to deliver this global product.

What is Telcos / Banks Fragmentation ?
There are c800 wireless operators globally and like banking, telecom is a highly fragmented industry that has to contend with differing sets of regulation in different markets. Both industries are considerably constrained by regulation to deliver regional products on a global scale.

Operators have already lost much of the perceived “value” in the sector to the handset, OS and app developers. Indeed the c800 global wireless operators have over 2.7bn Smartphone customers and iOS and Android account for around 2.5-2.6bn of these. Google’s MVNO launch which represents a further creep into mobile operators’ territory, although it is yet unclear whether this could offer a threat or a boost to profitability at the MNO level.

The wireless industry has created the most amazing connectivity platform that absorbs over $300bn pa in wireless network equipment investment, that is better exploited by Apple and Google with R&D spends of $6bn (FY14) and $8.0bn (FY13) respectively.

Does Collaboration Work ?
So far both banks and telcos have missed the opportunity in the Developing World to be at the forefront of mobile money, in our view. Currently both are looking to forge relationships, such as operators with Visa and Mastercard, but in our view a more dramatic solution may be required to create a defence for the banking sector and reassert the operators’ skill in connectivity. Currently operators are rolling-out own-branded NFC transaction and mobile “wallet” products. These include Vodafone Wallet, Deutsche Telekom’s MyWallet and debit/credit card-backed NFC products (Orange Money, Vodafone Smartpass).

In emerging markets up to 80% of the population is unbanked and therefore the opportunities are different. Wireless operators, such as Airtel (Airtel Money), Millicom (Tigo), MTN (Mobile Money), Orange (Orange Money) and Vodafone (M-Pesa) with their African assets, have launched banking products that still have a significant window to become the leading players in the development of financial services in these regions.

m-Payments opportunity will likely be lost for the banking and telecoms sectors in the Developed Market, particularly as Google Wallet and Apple Pay make large strides under leading brand and customer expertise reputations. However the outlook in emerging markets is very different.

In conclusion, data networks are critical to mobile-activity facilitation the real benefactors will be the content providers (Spotify, YouTube, Whatsapp, Instagram etc.) and the OS owners (Google, Apple) who have multiple opportunities to monetise Smartphone penetration; unlike operators who are likely heading toward a single form of usage monetisation – data monetisation.