Telcos banking on diversification
Financial services offer lifeline in price wars
IN the hotly contested telecommunications sector, characterised by data price wars and declining voice call revenue, businesses are having to diversify their income streams.
For South Africa’s telecoms companies, financial services and banking look likely to plug the hole left by falling prices. And that could be the reason why MTN Group has hired banking and financial services executives.
However, Peter Takaendesa, a portfolio manager at Mergence, said that was not necessarily the main purpose. “The company strategy to grow into digital services means financial services will clearly be part of their target markets for growth.” But, he said, the recent executive appointments were primarily to cover the gaps created by resignations over the past 12 months.
MTN recently hired Stephen van Coller, formerly CEO of corporate and investment banking at Barclays Africa, to be group vice-president of strategy, mergers and acquisitions. Ralph Mupita, the CEO of Old Mutual Emerging Markets, will bring financial services expertise to MTN when he joins in April as chief financial officer.
The key considerations in hiring the new executives, said Takaendesa, were likely to have been the need for better operational execution, the opportunity to consolidate in some markets and to build a transformed leadership.
However, he said: “The company strategy to grow into digital services means financial services will clearly be part of their target markets for growth.”
Mupita and Van Coller can offer insights into the banking and financial services environment across Africa.
MTN has launched e-commerce initiatives with Rocket Internet and has a microinsurance joint venture called aYo with local firm MMI — an attempt to master financial services after the failure of mobile wallet services in South Africa.
Vodacom stepped into the financial services sector in 2012 with Vodacom Insurance, which has a full insurance offering, including life cover.
M-Pesa, despite its failure in South Africa, has worked for them in their international operations.
Vodacom is keeping a close eye on opportunities in the finance space. Vodacom spokesman Byron Kennedy said: “There are various opportunities where Vodacom can play a meaningful role in the financial services sector locally. We continue to explore these.”
The failure of mobile wallet payment solutions launched by both Vodacom and MTN is proof of how this can go wrong. “Experience has shown that services like M-Pesa that are offered by a telco have done much better in jurisdictions where banking is lazy and uncompetitive,” said former FNB CEO Michael Jordaan.
Were MTN Group to acquire a banking licence, setting up a billing system would not be a struggle because banking and telecoms infrastructures are similar. “Both provide an intangible product based on a billing relationship. The essence of the service is virtual, with a small physical component — a sim card versus a bank card. Both enable other businesses,” said Jordaan.
With Discovery, Tyme and Postbank planning to enter banking, mobile companies may not find much room left.
“We are spoilt for infrastructure here in South Africa, of all sorts. We have a relatively good supply of everything, including banking infrastructure,” said Sasha Naryshkine, a director at Vestact.
The banking system was rated highly in international comparisons, said Jordaan. This meant the low-hanging fruit for telecoms companies was outside South Africa.
Across the continent, the thought of venturing into banking will probably be quashed by poor infrastructure and onerous regulation. “I am not too sure whether or not they would prefer to be the platform and enabler rather than having fullblown banking licences across different territories,” said Naryshkine.
Partnering with industry specialists will reduce execution risks because regulation is probably more stringent in financial services than telecoms. “Consequently, telecoms companies are likely to move forward cautiously when considering entering the financial services industry,” said Takaendesa.
While the most we can expect in the short to medium term are joint venture initiatives, it could be different 10 years from now as governments catch up with technological developments in the financial services sector.
“It may be possible for telecoms companies to apply for their own banking licences over the long term as the business models mature and regulators gain more confidence in the new business models,” said Takaendesa.