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Telcos and fintech

I spoke at a fintech panel in New York. Some panelists predicted that banks are losing their position in the finance services, and some also felt other players like mobile carriers could enter the market. I was more skeptical of the thought of telcos in that business. Is it a realistic scenario?

People sometimes think that everything is more dynamic and faster outside their own industry; the grass is always greener on the other side of the fence. But when you have seen many industries, you start to feel that inertia is strong in large corporations in all industries. It is hard to say if telcos are more dynamic than banks or vice versa.

Why do some people think telcos could become significant fintech companies? They see that fintech is a digital service and telcos should be good in digital when they transfer bits. They also think mobile is becoming such an important device for finance services that telcos could easily manage them. Then they mention some examples like M-Pesa. They have also typically seen the finance sector incumbent companies are very slow to adapt to fintech.

When seeing how well telcos can adapt new things in practice, it makes it more skeptical to believe that they could get an important role in finance. At least, in their own industry they have lost almost all new opportunities. They couldn’t get to mobile app and content business for themselves. They have come bit pipes. And often they cannot even get their own mobile apps and web sites to work properly.

If we look at the landscape as a whole, I would claim that M-Pesa is more an exception than the standard. Many other carriers also try something in mobile payments, but it is still in early phase as the mobile payments as a whole. Many experts see companies like Apple, Google, online payment processors and credit card companies are stronger candidates to dominate mobile payments. Of course, retail companies with their own solutions, like Starbucks, are also strong, although their solutions work typically only in their own stores.

If we think more generally, what kinds of companies have been able to create true disruption? Very often it is the newcomers, startups. Microsoft was not able to adapt to the search engine business. Google also took a significant part in online advertising instead of traditional media and advertising companies. Old bookstores don’t dominate e-commerce for books. Facebook and some other new companies took over the social networking, and e.g. Google and mobile service providers were not successful in it.

Financial services are more complex to operate than many other services. Finance regulations define guidelines for services and can also e.g. require capital and special competence in the finance service providers. It is hard to believe that carriers would be able to build this kind of competence and resources. Financial services can also easily include significant risks.

Telcos can probably have a role in some enabling components for fintech, when the API economy is becoming important in finance services. And they should really now clarify those opportunities and find the right partners. Fintech is a fast growing significant business that can create opportunities for telcos too. At the same time it is not very realistic or attractive scenario for telcos to really offer financial services.