Mobile Service Providers Can Use Payment and Finance as Building Blocks for the Digital World

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4Q 2018 | IN-5288

A developed understanding of the needs and requirements of digitization will serve MSPs well in offering customers new solutions and services in the financial sphere. Partnerships and M&A activity will only help expand MSPs’ capabilities.

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Dialog Finance Shows UnTelco Knows No Boundaries 


Dialog Axiata, the Sri Lankan unit of the Axiata Group Berhad, a Mobile Service Provider (MSP) active across multiple markets in the Asia-Pacific region, recently launched its finance company under the brand Dialog Finance PLC (DF). The creation of the unit is the direct result of the acquisition in September 2017 of Colombo Trust Finance. The goal of the deal was to create synergies between connectivity, digital innovation, and fintech disruption to foster the position of the MSP in the expanding digital world.

Merger and Acquisition (M&A) activities in areas beyond the core telecommunication industry (UnTelco M&A activity) is expanding as MSPs increasingly turn to M&A as a means to acquire expertise in new areas. Dialog Axiata is not the only MSP that carried UnTelco M&A activity in the financial segment with Telenor Pakistan acquiring shares of Tameer Microfinance Bank Limited in 2008 and in 2016. MSPs’ collaboration and M&A activity in the financial and fintech world will continue, as MSPs that venture into the payment and financial segments can become the enablers and creators of a digital ecosystem of services.

Financial Services Is a Key Building Block of an MSP-Led Digital Society


Dialog Axiata first entered the financial sphere back in 2012 when the Central Bank of Sri Lanka provided the MSP with a license to operate its mobile payment service eZ Cash. Along with its payment service, the MSP also offers a contactless transport payment service, as well as an integrated payment application. Dialog Axiata will operate DF, along with its other digital ventures that include services such as its e-commerce portal operated by Digital Commerce Lanka or its digital education service operated by Headstart (Pvt) Ltd.

In emerging markets, MSPs often have a wider reach than financial institutions. MSPs must understand that this is an asset enabling them to expand their offerings and to deliver solutions and new services to customers at a very early stage of their digital journey. Within this framework, MSPs like Dialog Axiata and Orange realized that they have the chance to create the market, rather than wait for the expansion of financial inclusion, thus seizing a role as creator of their own ecosystem to offer services beyond their core connectivity portfolios.

Should MSPs Enter the Financial Sector?


Similarly, to the telco segment, the financial sector is not a walled garden anymore. Financial institutions see the disruption of a digital world, but often lack the skills needed to harness the power of new technologies. This is where MSPs, with their more developed understanding of the needs and requirements of digitization, can add value. In both developing and mature markets, MSPs should come into play to lead the disruption of financial institutions and services to their own benefits. MSPs must look for opportunities in other markets where they can leverage their strengths in order to create additional value, which is exactly what they should pursue with financial services by means of their ability and technology expertise to support the digital customer. MSPs should enter payments and move deeper into financial services, as their communication services are essential for any digital customer’s journey, generating synergies between their traditional business and new digital opportunities.

In the case of Dialog Axiata, its mobile payment eZ Cash has been growing steadily since its launch, reaching 3 million mobile payment subscribers at the end of 2017 with a yearly transaction value of Rs25.5 billion (US$165.6 million) up 42% Year-on-Year (YoY). On the back of eZ Cash’s success, DF will now look to drive growth and innovation farther into the enterprise sector with digital financial solutions and services like business loans and fixed deposits. DF will be able to leverage the scale and expertise of Dialog Axiata; furthermore, it will be able to target Dialog Axiata’s own subscriber base and use the company’s proven mobile payment platform. Mobile payments are the first step for an MSP wishing to enter the sector, but it should not be the last one. The success of mobile payments creates further opportunities in the digital and financial sphere, ranging from loans to enable the growth of the local economy to money transfers across borders. Besides generating revenue, MSPs should deliver these services to improve brand trust, loyalty, and recognition, all essential features for any company willing to succeed in the digital world.

Mobile payments are not new initiatives for MSPs. Safaricom, Vodafone, Millicom, MTN, and Orange, among others, all launched mobile payment services, and these services have been a solid engine for growth. For instance, in September 2018, MTN reached 25.8 million active Mobile Money customers, growing from 19.8 million a year before. During 2Q 2018, Vodacom’s m-PESA revenue grew 18.1% YoY to ZAR634 million (US$43 million), reaching 12.7 million subscribers (excluding Safaricom) up 26% YoY.

Mobile services are growing, so MSPs should continue broadening their offerings in the payment and financial fields to create even more opportunities. For instance, MSPs should use their mobile money services to expand electricity to off-grid areas, as has been done by Orange with Orange Money in many of its African markets, including the Democratic Republic of the Congo, Madagascar, Burkina Faso, and Senegal, where its payment solution can be used to pay for off-grid energy. In this case, the mobile money solution enables customers to buy a kit that includes a solar panel, a battery, and accessories like Light-Emitting Diode (LED) lightbulbs, a kit to recharge several telephones, a radio, or a Television (TV) set. A sub-par electric grid is a common challenge across many developing markets and presents an opportunity that should be pursued by other MSPs.

Besides off-grid electricity, another opportunity emerging for MSPs, as has been done by DF, is to expand their financial services by providing loans to the customer and enterprise segments, strengthening relationships with customers and becoming a preferred partner. This is an example that other MSPs should follow, because providing loans, lending, and delivering other financial services can further help MSPs become an engine of digitization. For instance, a loan, could enable an enterprise to start its digitization journey, thus providing additional opportunity for the MSP through its Information Technology (IT)/Information System (IS) or cloud unit.

Targeting the financial sector to drive synergies is not a prerogative of MSPs in emerging markets, as MSPs in mature markets also target opportunities in this segment. An example in this space is Orange, which acquired the Groupama bank in 2016 to launch a mobile-centered offering and experience. As of March 2018, the company had around 100,000 Orange Bank customers. While moving into the financial and payment sector surely brings challenges, such as cultural barriers and customers’ readiness, Orange has plans to expand its Orange Bank offering in additional European markets, with Spain and Belgium identified as prime opportunities, confirming that the use of financial services as an enabler of digital ecosystems is an opportunity for MSPs across all types of markets.

Ultimately, while there are multiple options for entering the payment sphere, such as through partnerships via banks and other payment providers, as with many other new vertical markets, MSPs who really want to focus on the sector must undertake M&A activity. This is needed for MSPs to be able to tailor their strategies and be able to have full control in shaping their entrance into the financial sector.


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