Similar to telecommunications after passage of the 1996 Telecom Act, deregulation in the financial services industry has led to disruption and new opportunities. A number of technically-focused financial institutions (Fintechs) have emerged and because marketing represents up to 50% of their cost structure, many have adopted a wholesale B2B strategy providing partners access to services via backend APIs. With tens of millions of subscribers, unique marketing advantages, and a ubiquitous payment ecosystem Mobile Network Operators have the ability to rapidly launch and scale a high ROI financial service offering (as evidenced by Vodafone, Airtel, Orange and other international MNOs). Competition among MNOs in the US is limited to T-Mobile Money’s thinly-promoted bank account/debit card. Recently, financial service “Super Apps” have become dominant in APAC. While there is currently no equivalent in the US, LATAM, or EU, Apple is moving quickly in that direction.
Benefits for MNOs include an estimated $7 recurring monthly EBITDA contribution, reduced churn, valuable end user transaction data for analytics, and AI-driven in-app promotion for other telecom service offerings. Brand equity is enhanced by providing end users with savings and a high-utility financial tool. Providing access, inclusion, and helping solve the Poverty Premium demonstrates social responsibility satisfying investors and regulators. A far-reaching goal is for the 3 dominant MNOs to resurrect the failed ISIS/Softcard initiative and disrupt the entire US payments ecosystem.
The fastest, lowest risk, and most flexible path for MNOs to expand into financial services is to adopt the functional equivalent of a MVNO strategy partnering with a white label “financial services MVNE” platform provider.
The Evolution of Financial Services
Financial services are in a state of transformation. Like the wireless industry following passage of the Telecom Act in 1996, legacy service providers are responding to existential threats from deregulation, changes in consumer preferences, and technological innovation. Banks, which slowly evolved from the days when consumers regularly visited a local branch for in-person service, took 20 years to adopt ATMs, then online banking (primarily cost saving measures) but have recently been forced to adopt apps quickly as financial services go mobile. Fueled in part by Covid-19, branch locations with waning foot traffic are being shuttered. Mobile banking is a “must have” and customers expect a functional, elegant UI.
Beyond banking, the rest of the financial services industry has become specialized and fragmented. Gone are the days when was a single bank provided checking/savings accounts and loans for tuition, auto, and mortgages throughout a loyal customer’s lifecycle. The Internet has broken down barriers and new single product FinTech’s have emerged driven by data analytics and offering faster/better/cheaper services available 24/7/365, as well as a better user experience. Legacy Financial Institutions (“FIs”) with antiquated core systems can’t adapt and are becoming irrelevant.
Increasing competition for “me too” services has forced FIs to increase their marketing budget and squeezed margins. Marketing is now the largest cost for a FI, often representing over 50% of total expenses. FinTech’s typically have limited capital and can’t afford massive marketing outlays. As a result, many FIs and FinTech’s now offer their services to partners on a wholesale basis (B2B), accessible via back-end APIs, to leverage the client’s brand equity and marketing budget thereby reducing CPGA.
What’s a Super App?
One negative result of the change to multiple service providers is a cumbersome, disjointed user experience navigating between a plethora of specialized apps. This friction problem is solved by the emergence of “Super Apps”, a single user interface integrating the multiple financial services. China, Africa, and other international markets have dominant Super Apps (Ant Financial, WeChat, mPesa, etc.). Primarily due to more mature financial markets, retail Point of Sale systems, and user behavior (centered around debit and credit card payments), no dominant Super App has emerged in the US, LATAM, or EU.
In the Race to Super App, MNOs have all the pieces in place to win.
11 Services, 8 Fintech Business Models in a Single Platform
A Super App service offering for the US market should integrate bank account(s), debit card, credit card, P2P transfer, international money transfer and mobile top ups, marketplaces for loans and insurance, stock and cryptocurrency trading, rewards programs, and even credit building in a single app controlled by a Personal Finance Manager (PFM) that organizes a user’s financial life and promotes financial wellness.
Services can be offered in whole, in smaller bundles, or as individual services. Pricing set by the MNO is supported including “freemium” and tiered subscriptions. MNO preferred financial service providers are easily integrated.
Diagram illustrates a complete Super App service offering for the US market along with
the names of popular FinTechs providing these services (for illustrative purposes only)
Open Banking Personal Finance Manager (PFM)
73% of Americans rank finances as the number one stress in their life. According to the Federal Reserve, the average American has 3 credit cards, over 50% have more than 1 bank account, and these accounts must all be managed separately by the end user.
A PFM solves these problems. It provides a consolidated dashboard of all user accounts, organizing one’s entire financial life in a single screen, as well as other features including expense summaries, budgeting, goal setting, reminders, and notifications. Enhanced with new “open banking” features, a PFM enables money movement between accounts, payments, and other tasks without having to log into separate accounts or apps.
Transaction, account balance, and other data used by the PFM is provided by “data aggregators” (ex: Plaid) for a minimal monthly cost. As part of the onboarding process, the PFM links the users accounts and pulls up to 6 months of prior transaction data. Applying analytics on this data provides insight into end user interests, interactions, who they do business with, for how much, and how often. A PFM analyzes every transaction, everywhere.
Beyond The End User
Closed Loop Transactions Eliminate Card Processing Fees
The end user and MNO both have accounts in the Super App ecosystem enabling “closed loop transactions” that eliminate debit and credit card processing fees. Closed loop transactions also move money between accounts real time, at zero cost, and with no risk of fraud, disputes, or chargebacks.
With ARPU at $50 and VISA/MC merchant processing fees at 2%, paying monthly wireless bills via closed loop transactions contributes $1/month to EBITDA. Furthermore, PFM managing 2 or more partial payments during each monthly billing cycle can reduce churn.
NOTE: All 3 major MNOs working together could create a payment ecosystem comprising over 95% of the US population which retailers, SMB, and other enterprises (already MNO customers and re-emphasizing the MNO marketing power narrative) would flock to join a payment ecosystem that disintermediates VISA/MC and earns MNOs a small slice of every dollar spent by end users. The unfortunately-named ISIS (later Softcard) initiative shelved in 2015 was the a good idea before its time. Today, WeChat and Ant Financial have become so powerful the Chinese government has been forced to intercede. There is money in financial services!
Industry statistics show access to stand-alone PFM occurs over 8 times/week. Super App engagement with PFM and other services will be significantly higher. The promotion engine enables a variety of options to intelligently cross-sell other services MNOs have massive investments in like 5G, FWA, satellite networks, and content businesses including intel whether end users are buying competing services and how much they are paying.
Links to Loyalty Programs
A Super App Rewards engine functions stand-alone or in conjunction with existing MNO loyalty and reward programs. New rewards expanded beyond the MNO could include incentives for use of MNO financial services or in conjunction with MNO partner programs.
Super Apps include fun, engaging “gamification” tools that are used to promote MNO or partner products. Spin-to-Win could earn an end user 1GB of data, 50 free international SMS, a discount on a new smartphone, or other offers. It could also be used to encourage use of closed loop payments.
PFM data combined with the offer engine and interactive marketplaces enables contextual commerce (“the right offer at the right place at the right time”). A sample use case is insurance payments that occur on 6-month cycles, prompting the end user at the right time with a notification to check the insurance marketplace for a competitive quote, knowing in advance the current insurance carrier, premium payment amount, and due date and generating commissions that can exceed $120 ($10/month ARPU). With the coming end to the student loan moratorium, mortgages in the current housing boom, and loan consolidation amidst climbing interest rates, loans present another high commission marketplace.
Surveys show the majority of consumers would consider providing access to their customer data if there is a financial benefit. With end user opt-in consent, transaction and contextual commerce data create an anonymized “Micro User Profile”. Brands that pay for access to consumers pay more for targeted access. End users interested in saving money can opt-in, select from a list of products or retailers of interest they toggle on/off, or search for “Deals Near Me”, and receive micro-targeted digital coupons, exclusive offers, and promotions delivered real time via in-app notifications, SMS, and email.
Real-time notification triggers include geolocation, time of day, and other factors. An end user can enable notifications when pulling into the parking lot of a specific retailer (or class of retailer) in order to receive savings that retailers and brands pay top dollar for because it increases spend.
Social Consciousness Brand Equity: Helping Solve the Poverty Premium
22% of US households are unbanked or underbanked. 60% of US households can’t sustain a surprise $400 expense. Immigrants, students, newly divorced and others with no prior credit history are excluded. One time “Bill Shock” has long term negative lifestyle consequences. A “Poverty Premium” exists in the US. Those who can least afford it pay more. Too many Americans are financially underserved and have limited access to financial services.
A vibrant cash economy still exists for some portions of the US population. They require access to brick-and-mortar locations in order to fund accounts, pay bills, and access other services. Ecommerce requires digital money but adding cash into digital accounts is time-consuming and expensive.
Since the advent of prepaid over 25 years ago, MNOs have created an expansive payment ecosystem of company stores, dealer stores, and tens of thousands of third-party payment locations that can be leveraged to provide convenient access to financial services for the underserved while, at the same time, providing a source of new revenue for the payments ecosystem.
Note: Low-cost “cash recycling” ATMs that take deposits as well as dispensing cash make a solid business case for retail locations with high foot traffic. Dealers, retailers, and third party payment processors can use these ATMs for cash and risk management purposes eliminating bank deposits and reducing theft by reducing the amount of cash on hand. Interactive ATM screens also provide a forum to promote MNO services, financial services (including QR code to download the Super App), and dispense Super App physical debit cards for immediate use after onboarding. An end user can walk into a store with cash and walk out in minutes with a loaded bank account/debit card.
Super App as a Service Platform (SAaaS) Enablement
A Super App as a Service (“SAaaS”) platform provides MNOs with an end-to-end, “just add water” solution including a white labeled app, financial services, and customer service. The MNO’s only responsibility is marketing. Wireless MVNOs are marketing companies supported by the backend billing and controls infrastructure of an MVNE. SAaaS is the functional equivalent of the wireless MVNO model applied to financial services.
SAaaS offers the MNO flexibility and efficiency. Rather than being a core service provider, the SAaaS has an API hub linking multiple third party FIs and a UI integrating them into a single user experience. An API hub offers many advantages. New Fis can be rapidly integrated with the result that services will always be faster, better, cheaper. It enables serving a broad customer base with a wide range of demographics and needs. It enables integration and/or substitution of an MNO’s preferred bank, card processor, or other service provider. SAaaS middleware integrates the PFM which enables choice by and end user already has and wants to maintain an existing FI relationship eliminating account switching, the major hurdle to adoption.
Speed to market is accelerated. FI security and compliance requirements are administered by the fintech. A low operating cost structure, combined with competitive per-transaction wholesale rates, allow a SAaaS platform to offer the MNO a choice of undercutting being the low cost provider undercurring incumbent pricing or maximizing profit.
The Opportunity for MNOs
As financial services increasingly go mobile, they represent an increasingly logical product extension for MNOs. Providing savings, utility, and a great user experience wins new customers and loyalty from existing ones. Apple recognizes this. MNOs must move or miss out.
Rolling out advanced telecom services (5G, FWA) or entering new industries (content, satellite TV) is expensive and hard, taking years and tens of billions of dollars. In contrast, financial services powered by a SAaaS platform is a fast, easy, and investment is limited to highly efficient marketing. It requires almost zero capital upfront capex and has a minimal operating cost structure. Financial services will attain instant profitability.
Longer term, MNOs can become platform companies launching new mobile-first services with minimal cost infrastructure by leveraging their marketing power. As volume and the user base grows, captive companies can carve out a portion of the business in insurance, ecommerce, health/wellness, and other markets. For example, PFM transaction data in conjunction with alternate credit scoring engines enables an MNO to establish a lending arm providing loans to the premium portion of subprime end users while still passing the rest off to the loan marketplace. In wireless parlance, a “smart build” strategy starts with resale while gradually building out the network.
Why MNOs Win: marketing + operating costs combined with existing payment network is a game-changer
While FIs and Fintechs offering competing services must spend massive amounts on advertising, MNOs can leverage already-existing marketing channels, face-to-face contact, in-store promotion, billing, bundling, SMS (note: MNO promotion is not spam), MNO apps, and promote financial services in wireless advertising.
Likewise, MNOs can leverage their existing, ubiquitous network of stores, third party dealers, customer service, and third party payment ecosystem partners. As banks close branches, MNO distribution points can provide convenient, low (or zero) cost cash loading for Super App (and other) accounts including “cash recycling” ATMs that drive store foot traffic.
Consider the popular FinTechs shown in the pinwheel. Each must support a sales, marketing, IT, management, HR, and G&A infrastructure: for a single product; and competing head-to-head with other single product companies in the same space.
In contrast, SAaaS provides a low operating cost structure, minimal marketing costs shared across multiple products, and per-transaction costs at wholesale rates enabling the MNO a choice between undercutting incumbent prices or maximizing profit.
The Race Is On, Move Quickly or Cede the Market to Apple
US Neobanks, retailers like Walmart and Dollar General, PayPal, and others are racing to replicate the Super App model. With the notable exception of Apple, none possess the marketing power and structural advantages of MNOs. Movement in the US MNO space has been slow. Offerings have been generic, single service offerings attempting to reduce wireless churn. Appealing to limited demographics and with no customization, no PFM, and limited utility for end users they offer little profit potential. T-Mobile Money (bank account with debit card that competes with prepaid debit cards), Verizon (family debit cards), Cricket (free stock trading), and Boost (gambling) are “me too”, single service solutions. The financial services opportunity is grossly underestimated while the degree of difficulty to get there is overestimated. MNO marketing power is an overlooked, under-utilized asset that can immediately drive penetration in financial services.
The elephant in the room is Apple who has announced the future lies in growing service revenues and pulled the cover off ambitions to create their own Super App. With stores, people, customer service, and transactional relationships with an enormous and fanatical customer base, Apple represents the only competitor with marketing assets comparable to MNOs. In addition to a number of recent FinTech acquisitions, Apple also has a jumpstart with captive financial services including ApplePay, AppleCard, AppleWallet, AppleCash, and recently added softPOS (displacing retail POS card terminals). Apple has, however, taken the longer path because it wants to own the technology.
Strategically, a SAaaS platform for MNOs provides speed to market and the ability to move quicker after launch introducing new products or as a “Fast Follower” by accessing a multitude of FinTechs. It is the only fast path to beat Apple and other Super App contenders to market with a competitive service offering. A Super App for MNOs will increase revenue, reduce costs, increase cross-selling of other services, and provide a treasure trove of valuable data insight beyond CPNI about their end users. First to move will also gain a high utility VAS that will reduce churn, help grow its core wireless business, and provide additional revenue for the MNO distribution and payment ecosystems.
MNOs must move quickly and offer a competitive, full-featured, customizable Super App services offering before the opportunity is lost.
About Paul Posner
CEO / Owner Valorus Super App
Paul has 30+ years’ experience as CEO/owner of a Mobile Network Operator, Dealer, SaaS, and hardware/software development enterprises in the cellular, paging, satellite, IoT, fintech and consumer electronics industries. He has 3 highly successful exits and over 35 patents issued.
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