Strategic Expansion of Mobile Operators into the Financial Sector

Mobile operators have already transformed financial inclusion with mobile money solutions, offering critical services like payments, micro-loans, and micro-savings to underserved populations. However, as digital banking accelerates worldwide, mobile operators face new opportunities to expand into the financial sector fully. This article explores key strategies for mobile operators to deepen their role in finance, weighing the pros and cons of traditional banking versus neobanking, and offers a final recommendation tailored to the current financial landscape.

Why Mobile Operators Are Poised to Expand in Finance

The success of mobile money has laid a strong foundation for mobile operators to expand their financial offerings. With digital wallets, micro-loans, and micro-savings services, operators are addressing financial inclusion needs in emerging markets. According to the GSMA, over 1.2 billion mobile money accounts are active globally, with $1 trillion in annual transaction volume as of 2022, demonstrating both high demand and trust in mobile-based financial solutions . Given their established customer base and operational infrastructure, mobile operators are ideally positioned to expand into broader financial services like digital banks, providing increased flexibility, innovation, and inclusivity.

Key Strategies for Mobile Operators Entering Financial Services

Mobile operators have several options when it comes to expanding into financial services:

1. Building a Digital-Only Bank (Neobank): Expanding mobile money into a full-scale neobank allows operators to offer enhanced services like savings accounts, loans, and investments, within a digital-first model. Neobanks are increasingly popular, particularly with younger and tech-savvy customers.
2. Strategic Partnerships with Financial Institutions: Operators can collaborate with traditional banks to extend a wider range of financial services under the bank's regulatory framework, which can simplify compliance and streamline service rollout.
3. Obtaining Specialized or Full Banking Licenses: Some mobile operators may choose to apply for specialized banking licenses, enabling more control over their offerings and direct expansion into areas such as lending and wealth management.
4. Expanding Embedded Financial Products: Using embedded finance, operators can weave more products into their existing mobile money infrastructure, offering options like installment plans, buy-now-pay-later (BNPL) services, or tailored investment products.
5. Micro-Finance Focus: Capitalize on existing micro-loan and micro-savings services by scaling them with AI-driven credit assessment and personalized financial products based on mobile usage data.

Traditional Bank vs. Neobank: Which Model Fits Best?

Mobile operators considering entry into full-scale financial services must decide between the traditional bank model and the neobank model, each with distinct benefits and challenges:

Traditional Banking Approach

Operators who pursue traditional banking would provide a comprehensive suite of services, from savings accounts to loans, while also managing the complexity of physical branches and extensive regulatory requirements.

Pros:

• Broader Service Offering: Traditional banks can provide a complete range of financial products, including mortgages, investments, and business loans, appealing to a wide customer base.
• Greater Customer Trust: Traditional banks are generally trusted by customers, especially for large transactions and long-term deposits, which can help operators attract a more diverse clientele.
• Stable Revenue Streams: Traditional banks often have a stable, diversified revenue model from interest on loans, fees, and wealth management services.

Cons:

• High Operational Costs: Operating physical branches and managing compliance increases overhead, potentially reducing profitability.
• Complex Regulatory Compliance: Traditional banks face intense regulatory scrutiny, particularly for lending, capital reserves, and data security, which can delay product development and restrict innovation.
• Slower Response to Market Changes: Traditional banking often has a slower innovation cycle, limiting flexibility and adaptation to digital demand.

Neobank Approach

A neobank offers banking services exclusively online, aligning with the digital-first expertise that mobile operators already possess. This model enables seamless integration with mobile money services and appeals to customers seeking fast, flexible, and user-friendly banking options.

Pros:

• Lower Operational Costs: By operating without physical branches, neobanks can significantly reduce costs and pass on these savings to customers in the form of lower fees or higher interest rates on deposits.
• Rapid Innovation and Agility: Neobanks, being fully digital, can implement new features quickly, from real-time payments to advanced financial analytics, positioning them well in the competitive digital landscape.
• Appealing to the Tech-Savvy and Unbanked: Younger generations and underserved populations often prefer neobanks for their accessibility, convenience, and transparency. According to Accenture, neobank adoption has grown by over 20% annually among Gen Z and millennials since 2020 .

Cons:

• Limited Service Scope: Neobanks often lack comprehensive lending and investment products, potentially restricting their customer appeal.
• Challenges with Trust and Security: Some customers remain wary of fully digital banking, especially for large deposits or long-term savings, necessitating a strong emphasis on data security and customer support.
• Dependency on Licensed Partners: Many neobanks rely on partnerships with licensed banks for core banking functions, creating dependency and revenue-sharing constraints.

Financial Inclusion Impact and Flexibility with Neobanks

Neobanks have proven particularly effective in promoting financial inclusion. In regions where mobile money has already expanded, moving to a neobank model allows mobile operators to introduce enhanced financial products to underserved populations without physical infrastructure. The World Bank reports that 69% of adults worldwide now have a bank account, a significant rise from 51% in 2011, largely due to digital and mobile banking innovations . By evolving into neobanks, mobile operators can extend services like microloans and savings, tailored to the needs of unbanked or underbanked customers.

Final Recommendation: Go the Neobank Route with Strategic Partnerships

Considering current trends and the strengths of mobile operators in digital and mobile services, the neobank model is the most strategic fit. This approach leverages operators’ digital expertise, existing customer relationships, and operational agility while avoiding the substantial costs and complexities of traditional banking. However, to ensure compliance and product depth, mobile operators should seek partnerships with traditional banks or licensed financial institutions.

Key Benefits of the Neobank Model for Mobile Operators

1. Leverage Digital Strengths: Mobile operators already excel in digital platforms, making the transition to a neobank relatively seamless. They can integrate mobile-first banking features like instant payments, savings accounts, and budgeting tools without a drastic shift in operations.
2. Expand Financial Inclusion: With neobanks, mobile operators can reach underserved populations, allowing even unbanked customers to access tailored financial services that suit their unique needs and usage patterns.
3. Agility and Cost Efficiency: Digital-only banks can quickly roll out new services, experiment with innovative products, and keep overhead low, making them more competitive in a digital-first era.

Implementation Strategy for Mobile Operators

1. Develop Partnerships with Licensed Institutions: This allows operators to offer banking services without navigating full regulatory requirements alone, ensuring compliance while focusing on user experience and innovation.
2. Invest in Security and Trust-Building: Since digital-only banks face trust challenges, mobile operators should prioritize robust data protection, transparent communication, and accessible customer support to build credibility.
3. Leverage AI and Data Analytics: Mobile operators have vast customer data that can be used to offer personalized financial products, such as AI-driven microloan assessments or savings recommendations based on spending patterns.

Conclusion

For mobile operators already proficient in mobile money, the neobank model presents a low-cost, flexible, and scalable entry into full-service banking. By building on digital strengths and adopting a customer-centric approach, mobile operators can expand financial inclusion and tap into new revenue streams, all while minimizing the complexities of traditional banking. This strategy positions them to meet the evolving demands of digital customers in today’s rapidly changing financial landscape.

#MobileBanking #Fintech #FinancialInclusion #DigitalTransformation #Dreamelec

Sources:

1. GSMA Mobile Money, 2022 State of the Industry Report.
2. Accenture, "Future of Banking Report," 2023.
3. World Bank, Global Findex Database, 2021.

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• Serge Simo