SIFISO SKENJANA: Flexible telecom firms to grab a bigger slice of fintech pie

On August 25, Nedbank announced the resignation of its long-standing group CFO Raisibe Morathi, while on the same day Vodacom revealed she is their incoming group CFO, saying in a statement: “Given Vodacom Group’s leadership position as a mobile money provider in Africa and our accelerated growth ambitions beyond traditional telecom services, Raisibe’s extensive financial services experience makes her an excellent addition to the Vodacom group board and executive committee.”

What stands out is the role Morathi will be playing in embedding the operating model for financial services in the telecom model. We have seen Telkom recently launch a funeral insurance offering, as part of a more comprehensive financial services shopping list of lending, life insurance, transact and payments.

I reflected in a 2016 article how financial services firms were getting more entrenched in the telecoms space, primarily through partnerships with the incumbent telecoms, with a view to leveraging network infrastructure, diverse client bases and opportunities to broaden their distribution networks.

It seemed the smartest way to play for these financial services firms was through partnerships and value sharing models. Upon announcing its 2015 partnership (co-operation agreement) with Telkom, Old Mutual’s then CEO, Dave Macready, said: “I am excited about this partnership, which is a great example of the effective digitalisation of financial services. Giving South Africans easy access to insurance products through their mobile devices not only reduces cost, it accelerates financial inclusion, which is critical to reducing poverty and inequality, which contributes to boosting our nation’s development and future financial wellbeing.”

The partnerships that were blooming in the telecom and financial services space were likely the seeds that grew into the kind of moves we are seeing now in the telecom space to develop competing financial service offerings and augment their offerings.

Connectivity, big (and small) data and the proliferation of digital technology seem to be a perfect storm for the second coming of telecoms in financial services. They have the ability to penetrate the unbanked segment of the market with more agility than a traditional bank; they have the ability to study consumers, consumer preferences and trends with a lot more efficiency than traditional banks; and through their deep infrastructure, investments are able to continue playing in both the wholesale and retail markets, adding to earnings diversification.

Traditional banks, on the other hand, are finding more of their traditional revenue sources coming under pressure. The race to zero has intensified and monthly account fees (a significant source of revenue) will soon be a thing of the past. The Global Findex survey reported that in sub-Saharan Africa, almost 75% of the 340-million unbanked said they did not have enough money to own or open a bank account, anchoring the challenge that banks continue to face in this segment with perceptions of being expensive and with low levels of trust.

In addition, challenges related to legacy systems and their rigidity have created room for more nimble and adaptable fintechs and insuretechs to more visibly draw the fault lines in the servicing model of traditional banks.

The financial services opportunity for telecoms will be exerted primarily through a number of channels:

• The ability of telecoms to enhance their credit scoring through the data currency they have.

• Increased transactions going through mobile devices.

• Their ability to cross-sell more effectively.

• Through mobile, the opportunity of lower operating costs such as more extensive branch networks.

This second coming could certainly be a story reminiscent of the learning from the masters in Karate Kid  — wax on, wax off.

• Skenjana is chief economist and thought leadership executive at IQ Business.