Fintech Meets Telecom: How Neobanks Are Unlocking the Power of eSIM
Welcome to Fintersections, where we explore the exciting collision of fintech trends with diverse industries! In this edition, we dive into an exciting frontier: the crossover of fintech and telecom. Neobanks, which have already revolutionized the financial world, are now stepping into telecom by offering eSIM services, creating a seamless blend of financial and connectivity solutions. We'll analyze how neobanks like Nubank, Revolut, and bunq are evolving into all-in-one platforms that go beyond banking to offer a fully integrated digital experience.?
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The truth is, telecom companies have been playing a hidden role in our financial lives for years. Think about it: topping up your phone was a micro-transaction. Sending money to a friend with low credit? A mobile money transfer, courtesy of your telco.
But here's the twist: this convergence isn't a one-way street. Now, digital banks are dipping their toes into the telco space, and it all hinges on a tiny chip called an eSIM. Let's dive deeper and explore why the future of finance and telecommunications might be even more intertwined than we ever imagined.
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A Historical Timeline: Telcos' Foray into Finance
Let’s rewind back in time to set the context better. It’s the 90s, and banks were scrambling to embrace the internet, with Wells Fargo being one of the first to offer online banking in 1995. This was a turning point, a signal flare to the entire industry that the future was mobile. Today, every bank boasts a digital arsenal, from mobile apps to online investing platforms. But across the aisle, something similar was happening. Telecoms, once focused solely on connecting us to our loved ones, saw the potential of their vast networks and deep customer relationships, a unique combination that made them natural players in the financial arena. That’s when, in the early 2000s, mobile money services started popping up.?
Smart Money, launched by Smart Communications in the Philippines in Dec 2000, was one of the first mobile banking services launched by a telco in the world. But it was Kenya's Safaricom with its M-Pesa service, launched in 2007, that revolutionised money handling in Kenya. It understood that not everyone has access to living near banks or having bank accounts, and provided a convenient, secure, and accessible way to transfer funds, pay bills, and save, all through a mobile phone. The game truly changed, however, in 2013 when Safaricom’s M-Pesa underwent explosive growth: a staggering 43% of Kenya’s GDP flowed via M-Pesa, with over 237 million person-to-person transactions. This success story sparked a global wave of other telcos exploring similar ventures.?
In the Philippines, Globe Telecom's GCash became a household name, providing mobile-based financial services that quickly gained traction among the unbanked population. India's Airtel Money followed suit, capitalising on the vast unbanked demographic by offering accessible and convenient financial services through mobile phones. The Middle East also had STC Pay, which launched various mobile money initiatives, catering to both urban and rural populations with equal efficacy.
But telcos, much like banks, had a treasure trove of data – information about your spending habits, location, and even phone usage. The challenge? Traditionally, they couldn’t fully leverage this data to offer a complete financial experience. That's where embedded finance came in – bringing in a wind of change where partnerships between telcos, banks, and fintechs all worked together to create a more enriching experience for all the stakeholders involved in the value chain.
Now, telecom companies are offering more than just mobile money; they are launching full-fledged digital banks embedded within their existing ecosystems. Suddenly, our phone isn't just a communication device; it’s a financial hub for more sophisticated offerings. Modern-day telcos have since diversified their business models, moving beyond basic mobile wallets to niche propositions, like Brazil's Vivo Money offering personal loans and credit lines, or establishing their own digital banks, exemplified by Orange Bank in Europe that offers everything from savings accounts to personal loans and even insurance. Concurrently, the superapp strategy has gained traction, with companies like NTT Docomo in Japan and True Money in Thailand integrating multiple services into a single platform, blurring the lines between communication and financial management.
Banking Just Got a Whole Lot ‘Sim’-pler
As telcos have established themselves in the financial space, digital banks are now leveraging telecommunications infrastructure to enhance their service offerings. Forget bulky wallets and fumbling for the right SIM card when you are travelling abroad – the future of finance is sleek, digital, and embedded right in your phone. Originally developed to eliminate the trouble of inserting and programming physical SIM cards into Internet of Things (IoT) devices in 2010 , eSIMs have since then rapidly gained traction. As of 2023, the eSIM market soared to a value of $4.7B and is projected to skyrocket to $16.3B by 2027.
Think of eSIMs as the ultimate upgrade for your mobile experience. Put simply, an eSIM functions as a digital, non-removable SIM card seamlessly integrated into a device. Unlike traditional SIM cards, they cannot be physically swapped out, but require the download of an operator's eSIM profile to activate, a process conducted entirely online for user convenience. This promises unparalleled convenience, heightened security, and uninterrupted global connectivity for consumers. For digital banks, eSIM adoption opens new horizons globally. With their expansive customer base and data insights, digital banks can precisely target and cross-sell additional services.?
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The allure of eSIMs for both customers and fintechs is multi-faceted:
On the fintech side, the drivers include:
For consumers, the key drivers encouraging adoption are:
The eSIM Stack: Mirroring the BaaS Model for Telecom Innovation
The eSIM stack is creating waves in the telecom world in much the same way that Banking-as-a-Service (BaaS) has reshaped financial services. Let’s break it down:
In the BaaS stack, licensed banks like J.P. Morgan and Goldman Sachs provide the regulatory foundation. Sitting on top of these banks are BaaS API providers such as Unit and Stripe, which enable fintechs like Chime, Affirm, and consumer brands like Amazon to embed financial services, such as loans and payments, directly into their platforms.
In the eSIM world, this structure is echoed. Mobile Network Operators (MNOs) like T-Mobile and Claro serve as the foundational layer, offering the necessary infrastructure for connectivity. Sitting above the MNOs are Telecom-as-a-Service (TaaS) API providers like Gigs, eSIMGo, and BetterRoaming, which simplify the complex process of managing eSIM profiles and enabling international mobile connectivity. These TaaS providers empower fintechs like Nubank, Revolut, and bunq, along with consumer brands like Swiss and FlightHub, to offer seamless mobile data services within their apps, just as BaaS providers enable embedded financial services.
Both stacks—whether embedded finance or embedded telecom—allow brands to provide integrated services, simplifying the user experience, creating new revenue streams, and enhancing customer loyalty.
The Future: A Fintech-Powered Mobile Ecosystem?
Fintechs are becoming not only financial hubs by integrating savings, lending, investments and insurance but also digital hubs, delivering one-stop-shop solutions for today’s digital-savvy consumers in the form of eSIM and eCommerce marketplaces. As the lines between finance and telecom continue to blur around customer needs, fintechs seem to be setting the tone for beyond-finance services by launching innovative products and services for their captive customers.?
So, the next time you open your banking app, keep an eye out for eSIM options. Who knows, you might just be a step away from becoming an active part of this exciting convergence!
And It’s A Wrap! ??
Hope you enjoyed this edition of Fintersections! Stay tuned for more interesting think-pieces in the coming months.
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The convergence of fintech and telecom through eSIM technology is truly groundbreaking. The transformation of neobanks into multi-service platforms is pioneering a new era of seamless financial and communication services. This intersection is reshaping mobile services and finance, presenting exciting opportunities for businesses and consumers alike. Thank you for shedding light on this transformative trend, WhiteSight.