Crossing telecoms lines can pay off
Sector finds mutual benefits in financial services partnerships
HAVING a good and nuanced grasp of financial inclusion measures and indicators is vital to succeed in the increasingly integrated telecommunications and financial services sectors.
The relationship between telecoms and financial services has become progressively intimate, with a growing number of partnerships, co-operation agreements and mergers over the past decade.
FNB now offers sim cards and data packages as well as cellphone contracts.
Similarly, more than 10 years ago MTN and Standard Bank started a 50-50 mobile banking joint venture, giving the bank access to the mobile operator’s subscriber base.
More recently, Bidvest has partnered with Vodacom on the M-Pesa mobile money service.
It appears that the key ingredients to a successful marriage of the two sectors are shared infrastructure, broader access to client bases, and opportunities to broaden the distribution network.
What is one to make of Telkom and Old Mutual’s cooperation agreement, signed in October last year, and the more recent announcement of a Sanlam partnership with African Bank’s “good bank”, which is being launched next month?
Last year’s FinScope survey shows South Africa’s financial inclusion levels are at 86%, with the total banked adult population at 77%.
However, the survey showed that high levels of inclusion may not necessarily mean that people are benefiting from the financial products they have — highlighting the important difference between product adoption and product usage.
For example, 63% of adults in South Africa still prefer to pay bills at branches, thereby not making good use of the (digital) transactional products on offer, despite a high smartphone penetration rate.
This explains the SanlamAfrican Bank partnership, in which the insurer aims to sell its products to bank customers at branch level.
The “good bank” is still able to attract an average of 150 000 people a month to its 400 branches nationwide, according to CEO-designate Brian Riley.
For Telkom and Old Mutual to achieve the desired synergies from their partnership, the focus will need to be on understanding the nuances in product adoption and usage.
Telkom continues to be the leading fixed-line operator in
GETTING CONNECTED: Telkom and Old Mutual recently signed a co-operation agreement the country, with more than a million ADSL customers and three million fixed-voice subscribers.
Cautious optimism must be applied when looking at its 60% growth in headline earnings and 21% increase in active mobile subscriber base to 2.1 million subscribers.
CEO Sipho Maseko warned last year that the company was still fragile and susceptible to a relapse into negative earnings territory.
However, despite its stronghold in the fixed-line space, Telkom faces increasing downward pressure on its fixed-line voice and interconnection rev- enue, with an 11.9% decrease according to its 2015 annual financial statements. Leasedline revenue decreased 22%.
The agreement with Old Mutual is expected to let Telkom offer innovative solutions to its customers, such as funeral insurance for prepaid customers underwritten by Old Mutual.
Telkom spokeswoman Jacqui O’Sullivan says the uptake has been impressive, with more than 20 000 expressions of interest from its customers in the second month after the launch.
The deal would qualify Telkom’s prepaid customers for R10 000 funeral cover when they recharge with R100 or more each month, at no extra cost.
However, given that there are 18.5 million insured adults in South Africa, with only 6.6 million of those having non-funeral insurance, and 5.5 million having two or more funeral cover products, one has to wonder at the real value-add this transaction will bring to the consumer. Will consumers cancel their current funeral plans and become Telkom prepaid subscribers just to qualify for this offer?
Lessons need to be taken from some of the initiatives involving partnerships and co-operation between financial services providers and retailers. Edcon, for instance, has experienced the wrong end of the envisaged synergies, resulting in some write-offs and the eventual disposal of its credit book to Absa in November 2012.
For Sanlam, African Bank was surely everything but love at first sight, but the new marriage falls squarely in the growing trend of institutional appetite for the lower-income markets, and Sanlam may have just the right partner to access that market — especially with the opportunity to access the R44-billion stokvel market through the stokvel products the bank expects to launch in May or June.
Telkom and Old Mutual hope to take advantage of the convergence and integration of telecommunications and financial services through leveraging shared infrastructure and broadened distribution networks to remain competitive.
Access to new prepaid customers seems like an increasingly steep hill for Telkom, but with the right product focus and continued effort to be efficient, the partners may start becoming meaningful players in the mobile subscriber space in the medium to long term.
Skenjana has an MSc (finance) from Esade Business School in Spain and a BBusSci (finance honours) from the University of Cape Town. He is an independent adviser and research consultant on African industry and financial and capital markets
Key ingredients are shared infrastructure, broader access to client bases
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