Telkom is set to invade SA’s flourishing fintech space, looking to venture into the payments and insurance markets.
This as most local mobile operators have already started making inroads into the fintech business to boost revenues.
In Telkom’s integrated report for the year ended 31 March, group CEO Sipho Maseko says the company delivered a solid performance, with group operating revenue increasing by 5.3%, driven by the stellar performance of the mobile business.
However, Maseko pointed out the change in technology continues to put Telkom’s fixed business under pressure, with fixed voice revenue negatively impacting the overall performance of subsidiaries, BCX and Openserve.
On its fintech plans, the company says: “One of Telkom’s business objectives is diversifying its portfolio to provide as much value and efficiency for our customers as possible. Fintech is one of the areas we are investigating in order to achieve this objective.
“Telkom has spent a lot of time investigating and planning the right partnerships so that we can offer integrated payment services and insurances service, so that we can leverage our capacity to bring down some of the barriers, especially for small to medium businesses to be part of the economy.
“It’s too early to share specific details but this diversification is being looked after by someone within the organisation,” the company says.
MTN recently appointed Yolanda Cuba as group chief digital and fintech officer to progressively grow the fintech and digital opportunities across the African continent.
Vodacom also recently entered the digital payments market following a partnership with Mastercard as part of its fintech drive.
Adjacent markets
Fintech analyst Andre Wills, MD of Africa Analysis, comments that telcos are seeking to diversify their revenue base by entering adjacent markets.
“The fintech space represents an interesting adjacent market where technology has enabled financial services to be delivered to customers in a more efficient way. Access to and engagement with potential customers through the mobile platform allows telcos to reach into different market segments in a more cost-effective and targeted manner,” he says.
Wills observes that Telkom seeks to expand its presence in adjacent markets through the entry into fintech.
Fintech encompasses a broad range of financial services, he notes. “Telkom seeks to broaden its value offering and exposure to their current customers while seeking to attract new customers.
“Should Telkom prove to be successful, then the company would have gained a foothold in a rapidly growing services market. This will also enable Telkom to broaden and diversify its revenue base.”
According to Wills, the local fintech market is following the global trends of rapid growth, innovative service development and delivery, and enabling customers to more easily subscribe to a financial service.
He explains that in developing markets, fintech has enabled previously excluded people to directly participate in and benefit from financial services.
“The classical comment is that the ‘unbanked’ person or rather the ‘digitally excluded’ person can now benefit from the financial services that are accessible through the merging of technology, communications and financial services. Overall, the fintech market is undergoing strong growth. The growth in the fintech market will cause the traditional financial service providers to undergo a significant redefinition of how to service their customers. The fintech market will significantly disrupt the traditional financial services market.”
Leveraging customer base
Mark Walker, IDC associate VP for Sub-Saharan Africa, says finance is about information rather than tangible goods.
“So ultimately, it is about two components that play very well into the telco space – digital access to customers and a platform for delivery of digital products and services. Telcos and financial institutions possess both, thus compete in the fintech space to provide financial and insurance products and services as this is about the movement and flow of data.”
Walker points out that with the high growth in electronic payment systems and the rise in acceptance of blockchain and crypto-currencies, telcos see an opportunity to leverage their customer base and digital infrastructure into new markets by offering financial products.
“Furthermore, by doing so, they add value to their basic connectivity offering and become more appreciated by customers by extending their product portfolio. Investment in fintech has grown by more than 2 200% between 2008 and 2015 and is worth more than $22 billion,” he says.
Walker believes Telkom will tap deeper into its existing customer base by extending its offering into banking and insurance products as well as services, and potentially attract new customers.
“This will increase their customer value perception and also open up new revenue streams as fintech products are added to their portfolio.”
According to Walker, digital payment solutions remain a key component as can be seen internationally with Apple iCard and the continued growth of M-Pesa-type mobile payment platforms, especially in Africa.
Static revenues
For Arthur Goldstuck, MD of World Wide Worx, traditional telco revenues are static, with voice and SMS declining, and data costs coming down rapidly, to the extent that it tends to balance out increase in volume.
This means telcos have to generate revenue from new sources, primarily through adding value to existing services, he explains.
“However, for many years now, the major mobile operators have been delving into the fintech world, with Vodacom in effect owning M-Pesa, and MTN having success with Mobile Money in several countries.
“Vodacom has also launched a number of insurance products, in particular funeral insurance, which it sees as a great opportunity across Africa. MTN in Nigeria has been given a super-agent licence by the central bank there to distribute financial services.”
Goldstuck believes the massive client base of a telco that has extensive insight in the financial activity of customers makes for a natural integration of financial services, enhanced by the communications and data platform the organisation already has.
“This means it is both leveraging its assets and developing new revenue streams.”
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