A financial revolution is taking place around the globe, with telecom companies among the significant players thriving in the financial technology (fintech) space. The shift to digital is set to be permanent, as financial services and payments are now powered by mobile phones, providing access to new data, embracing technological innovations, and changing mindsets of users.
Enabling greater financial inclusion, the fintech industry is mitigating frictions by following innovative business strategies that increase the financial capacities and financial health of individuals, households, and organizations worldwide. In fact, payments experts forecast that strong growth in non-cash payments will continue over the next five years, resulting in a cumulative increase in digital transactions of more than 50% above 2020 levels across the Middle East region alone.
On the cusp of a payments revolution, digital payments and transactions would be central to the new normal. Telcos are among the leading enablers now in the fintech space as they take customer relationships to the next level. These initiatives are in line with the visions declared by the governments in the GCC countries such as Saudi Arabia, Kuwait, Qatar, and UAE which offer strong regulatory support for digital innovations and facilitate fintech innovation to build a globally integrated environment.
Fintech and telecom combined
Mobile operators have strong reasons to penetrate the fintech industry, bringing innovative and secure solutions to market at scale and offering its extensive reach, strong customer relationships, advanced analytics, and diverse partnerships. This brings rapid innovation, flexibility, and powerful access to the market with solid capabilities.
We are aware that telcos have broader customer reach and distribution capabilities compared to traditional financial services. Thus, with the development of smartphones and the ability to access banking facilities and capabilities on the go, telcos prove their greater relevance in the financial services segment.
The advantage lies not just with scale but also with timing wherein telco relationships can form earlier than banking relationships. The generation nowadays is typically in possession of a smartphone from a younger age, giving telco operators a head start in developing a relationship with customers. Besides, mobile penetration is considerably higher than banking penetration in emerging economies. This gives telecoms a dynamic edge for introducing financial products to their clients. As a result, telco-backed fintech not only benefits from rising market penetration levels but also takes a bigger share of the financial services pie from incumbents.
Interestingly, fintech companies identify their customers with account numbers while telcos will identify their customers with phone numbers. By providing financial services, telcos can build their creditworthiness to the unbanked population and now expand their horizons not just to provide data or telecom plans but contribute to financial inclusion. Without a doubt, financial services and mobile payments as a telecom value-added service (VAS) can be a lucrative potential that could be the trend in the coming years.
Universal accessibility, including in rural and remote areas, is a huge advantage that telcos can leverage for purposes other than just communications. Putting banking and fintech functionality on top of the vast existing telecommunications network opens a multitude of doors on both the business and consumer sides. The ability to use a regular phone as a telecom mobile wallet for transferring money and paying utility bills and rent, among other services, has proven to be truly invaluable for people with limited access to banks and those who opt for simple onboarding processes.
Fintech investment of telcos in the Middle East and Africa
Mobile payments and digital banking are at the top of telcos’ fintech endeavors. It has been evident that the demand for digital financial services witnessed a surge as working practices and customer banking habits changed because of the COVID-19 pandemic. Hence, telcos have taken strides in offering these services for faster and more efficient experiences.
In 2020, regionally, the Middle East and North Africa (MENA) saw the strongest growth in fintech, showing an increase of 40%. Continuing in 2022, fintech investment is driving growth in MENA’s digital economy as consumers pivot to cashless payments and the sector benefits from improved regulations. In parallel, according to a McKinsey survey focused on the Middle East payments market, 30% ranked telecom-backed wallets respondents to have the greatest impact on the future of payments. This affirms telecom companies as strong contenders in the fintech sector.
A notable example is stc pay, a leading fintech player in the region and the first financial unicorn in Saudi Arabia. Backed by the trust and reputation instilled in stc Group, the company now serves 7.8 million users. By digitizing international remittances through its partnership with Western Union, the company has managed to address key customer pain points and made it easier as they can send, amend, track, and cancel the transaction at any point in time and get refunded instantly through the platform. It is currently in the process of conversion into a digital bank.
Etisalat has also signed an agreement with leading fintech players to launch a new digital banking platform — Wio — that received in-principal approval from the Central Bank of the UAE. This partnership provides Etisalat the opportunity to invest in the growing digital banking sector and leverage synergies in this space by offering a broader portfolio of products and services. Owning 25% of the stakes, Etisalat, together with ADQ, First Abu Dhabi Bank (FAB), will enable Wio to offer customers in the UAE a fully digital banking choice with tailored products and services that meets their lifestyles and needs.
Using mobile phones to facilitate payments has definitely changed the dynamics in the MENA region, as one of the locations being seen to adapt fast to digital and contactless transactions. One of the early entrants is Safaricom which launched its mobile money transfer application M-PESA in Kenya in 2007. Then, it quickly gained traction with urban workers who wanted to send money to their families. M-PESA drastically expanded financial inclusion and now provides its safe, secure, and affordable platform to around 50 million people. In early 2020, Vodacom and Safaricom completed the acquisition of the M-PESA brand from Vodafone Group to accelerate the growth of M-PESA through Africa, recording 15 billion transactions in that year.
MTN’s Mobile Money is also stimulating the adoption and usage of mobile money to facilitate payments. The use of its payment solution known as MoMo Pay facilitates everyday payment for goods and services. As per recent figures, there are over 22 million Mobile Money subscribers in 15 countries, and as part of the GSMA’s Connected Women Commitment Initiative, MTN Mobile Money has committed to increasing the proportion of women in their MoMo Pay customer base to 40% by 2023.