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Bank-operator vs Operator-bank

Startups have a variety of business models to choose from these days. Previously stonewalled Gardens of Eden have been opened up and made accessible on reasonable, in most cases, terms. Worldwide. With adequate funding - readily available to the right candidates - a young startup can even become a bank or a mobile network operator (MNO).

Surely, being a successful bank or MNO is not simply the matter of acquiring a licence (in fact, one can even operate without a licence by partnering with the companies that already have one). The secret of success lies in building a large happy and loyal user base. 

Let's work it out backwards: if customers find your product or service of value or if they can clearly see compelling - unique or not - tangible benefits (or if they are simply curious), they are likely to give it a go. As Mae West succulently put it: "I'll try anything once, twice if I like it, three times to make sure." If perceived value, customer experience and customer service meet or exceed their expectations, customers are likely to stay. They will often stay even if a somewhat better service later becomes available elsewhere - we all know the pain of switching. So, how do you get them to make that critical "let's try it" step?

There are many reasons - mostly psychological (i.e. subliminal) and emotional ones - why a consumer may become interested in a new offering. Two strong reasons are convenience and control, i.e. allowing consumers to carry out familiar tasks in a more enjoyable and flexible way without changing existing habits or modus operandi. Let me illustrate that with an example: in the past, people had few choices when travelling - either to change their home currency into a foreign one or use traveler's checks (funny enough, Amex still offers them). Enter Visa and MasterCard as well as cross-border ATMs. 

During the past few years, every Tom, Dick and Harry started doing "mobile payments". One of the previous mobile-related fads was virtual mobile operator (MVNO). The key difference, from the new entrant's perspective, between mobile payments and MVNO is geographical reach: if you provide your customers with a payment method (e.g. prepaid Visa card), they can use it globally on the same terms; if you provide them with telecom services, your competitive advantage quickly evaporates when your customers go abroad. In other words, it's much harder (product- and service-wise) to compete with Vodafone than with Barclays - the former leverages its global network much better than the latter.

However, if we look at the other side of that medal, profit potential of a solid MVNO business is well beyond that of mobile payments or prepaid cards: consumers are happy or OK to pay for telecom services, but they are increasingly reluctant to pay for basic financial services. The reason for that is simple: in the consumer's mind, mobile operator provides you with something you don't have, whilst with banks you pay to use your own money.

That brings us to the subject of this blog post: who stands a better chance of offering a highly compelling hybrid product/service: a bank that becomes an MVNO or an M(V)NO that becomes a payments provider (e.g. O2 Money) - Virgin is an interesting business model from that perspective, btw. One of the clues relates to trust and respect: do consumers trust, in a broad sense, both banks and operators? Generally - yes. The real question is: do consumers want or need their bank to also be their operator or vice versa? Several studies and research reports suggest that not to be the case (the subject of "respect" is part of the equation too, but we all know where things stand there...)

However, many big banks have a clear advantage over most large operators - glocal presence. How many countries does HSBC or Barclays operate in? What about T-Mobile or O2? 

What if a large multi-national bank decided to setup MVNO operations in all the countries they have presence in, thus forming own global mobile telecom network? What if they then offered roaming-free tarrifs on that network (and between those countries)? As well as competitive and seamless cross-border payment services (they have all the "rails" in place for that already)? As well as transit payments. All that on the basis of "any OS, any smartphone" NFC platform. Notice the lack of question marks in the last two sentences. Think of that Visa/MasterCard example above. Watch this space.

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Comments: (1)

A Finextra member
A Finextra member 21 September, 2012, 21:47Be the first to give this comment the thumbs up 0 likes

Or just have a global wallet/app and just partner with a multi-opco Operator?  This is what WhatsApp did to get global and free reach with their messaging App.. with H3G

http://thenextweb.com/asia/2012/09/12/whatsapp-guns-rim-signs-first-unlimited-roaming-deal-three-hong-kong/

Its not an app I would use, but shows you can partner.  Until you have something that competes with the Operator (err - wallet).

I'll watch your space.

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This post is from a series of posts in the group:

Innovation in Financial Services

A discussion of trends in innovation management within financial institutions, and the key processes, technology and cultural shifts driving innovation.


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