What if a bank owned a telecommunications company? I’ve been pondering this interesting question lately. Let me lay out the important pieces.
First, telcos have larger customer bases than banks. If a bank owned a telco, the bank would suddenly have a captive set of customers to which it could market products.
Second, in most countries, people use prepaid phones. They buy airtime from their telco’s agents, and the stored funds decrease as you use the minutes. However, since telcos aren’t banks, they cannot allow consumers to use the prepaid funds for other services. Allowing such use would mean telcos cross-over into a deposit taking institution, which would require them to be regulated like banks..
But, if a bank owned a telco, the bank could treat these types of accounts in a more flexible way, issuing debit cards against them, backed by the funds in the account. Customers would be able to use the cards to make payments wherever debit or credit cards are accepted, or to withdraw cash from ATMs. The telco would host a mobile wallet system to authorize the transactions, and could even issue the cards (or virtual cards) via a mobile interaction.
Getting back to my first point, if a bank owned a telco, it could make these basic banking services available to a much larger user base, many of whom may not have access to stored-value accounts or credit cards otherwise. For consumers without a traditional bank account, this would allow them to participate in the financial system, and provide convenience, as people can simply top up one account and use the funds for multiple purposes.
What’s the business case? First, when people use the card, the bank collects an interchange fee for the transaction. Second, the numbers make it work. If a bank tried to reach an audience as large as a telco’s customer base, even with a huge marketing budget, they probably wouldn’t be able to sign up enough people to cover the cost. However, if they were able to issue a card against a mobile pre-paid account, you suddenly have a big enough customer base to make the offering worthwhile. Beyond a revenue-generating game, it becomes a customer-acquisition game. That’s why it’s such a sweet thing.