Elevating financial services

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Telenor has been part of the mobile financial services (MFS) industry since 1999. The company started in Norway with payment service Premium SMS. Since then, the company has expanded its MFS offerings into Europe with Platimo in Serbia and Mobil Payment in Hungary, as well as in emerging markets Pakistan, Bangladesh, Thailand, and Malaysia.

The banks have left the payments space open for others like telecoms

Telenor’s Easypaisa service in Pakistan is one of only 14 successful providers of mobile financial services in the world (ref GSMA), ranking third in number of transactions and customers. The concept has been such a hit that “Easypaisa” is even used as a verb for sending money in the country.

Behind Telenor’s success is not what one would normally associate with external factors, such as regulations or market dominance, says Tine Wollebekk, VP and Head Financial Services in Telenor. Most successful global MFS providers have rather four things in common: committed chief executives, willingness to invest, operational excellence, and simplicity in their key offerings.

“There was a time when you got money into your account, you took out cash or wrote a check,” says Wollebekk. “Now, it’s more and more normal to take money out and pay it into another payment facility like bus service, an online payment instrument and music stores. In my opinion, the banks have left the payments space open for others like telecoms.”

Reaching the Underbanked

Telenor is now using its global MFS experience to help it break into more advanced financial services in Serbia. Telenor first introduced mobile phone payment services in the Eastern European country back in 2010. The company plans to launch its first fully online bank in Serbia and own a Mastercard credit card service by the second half of 2014. The new ventures are a result of Telenor’s acquisition of KBC Banka in Serbia, which was announced in April 2013.

Through the KBC deal, Telenor plans to offer new types of financial services primarily aimed at the estimated 30% of Serbians that are “underbanked,” with only basic access to financial services, such as a savings account. Customers will be able to pay for transactions online, send money to one another via their Facebook app, hold savings accounts in the local currency dinar, and for the first time in Telenor’s history, take out small loans for their smartphones.

“We are a telco, so we already have the credit history,” says Ove Fredheim, Telenor Serbia CEO. “There is a segment here which is underbanked, so there is a threshold for them to get loans.”

Societal Lift

The startup of Telenor’s online bank will provide a needed lift for Serbians dealing with a very traditional banking sector that relies on physical presence. People still regularly use cash in this dual-money economy because the dinar is a discriminated currency that receives no savings interest on transactional accounts in Serbian banks, explains Fredheim. Telenor’s bank would both provide interest and an easier alternative to waiting on cues in post offices or travelling long distances in the countryside to pay bills.

In general, mobile financial services could spur more Serbians to save via bank accounts, build credit histories, and pay for transactions digitally versus cash, all key to helping the economy grow. A 2011 study carried out by Boston Consulting Group on behalf of Telenor found that mobile financial services could lead to 23,000 new jobs being created in Serbia and increase the country’s GDP by 2% by 2020.

“There is quite a significant tax avoidance problem in Serbia,” says Fredheim. “Getting into the public books would provide a great benefit.”

“There is also a lack of trade in digital goods. This would open up for Serbians to sell to the (global) digital marketplace.”

By buying a bank we are taking a big step. It’s something we want to do in more countries if we can

Banking Pioneer

Bank ownership may not be altogether new for Telenor, but the KBC deal is unique. The company bought a 51% share of Tameer Microfinance Bank in Pakistan in 2008. As a result, Telenor was the first in Pakistan to offer mobile savings through the April 2013 launch of Khushaal Munafa to its Easypaisa Mobile Account customers. However, the KBC Banka deal marks the first time Telenor fully owns a financial institution.

“We could not do any kind of financial services in Serbia without owning a bank,” says Wollebekk. “By buying a bank we are taking a big step. It’s something we want to do in more countries if we can.”

Martin Navratil, Managing Director of Telenor Banka, sees a huge potential in this untapped market, with the possibility of 650,000 Telenor Bank customers by 2021. The strategy is to take advantage of the country’s high connectivity rate – it has a higher than average amount of Facebook users in Europe — and relatively low penetration within online banking. Close to 90% of Serbians have access to banking services, yet only 6% utilize mobile banking.

“We feel there is a strategic gap,” says Navratil. “This would bring us into the top one or two retail banking systems in Serbia.” The dominant player, Banca Intesa, currently has a 12% market share in the country’s highly fragmented banking sector, which is spread among 30 banks.

Financial Inclusion

One of Telenor’s strategic advantages in tapping into Serbia’s banking market is its dominant presence as a telecom. The company entered the market in 2006 by acquiring Mobi63. It has since grown to 3.2 million mobile customers with a 44% market share by revenue. By using its 120 Telenor service shops in 85 cities, the company can reach its future branchless banking customers with the help of a physical network.

We could not do any kind of financial services in Serbia without owning a bank

Another advantage is its large database of customer credit history. Telenor can rank customers’ ability to pay based on behavior patterns, such as late payment, frequency of address changes, and type of usage. Using this information, Telenor can offer microfinance loans not just in Serbia, but other countries in the future. There are already plans to provide mobile device financing directly in Thailand in connection with the expected rollout of 3G services and wage advancements via “payday loans.”

“In our part of the world we take for granted credit history,” says Wollebekk. “This is actually the key to financial inclusion. To grow a society, you need a certain amount of credit. And in order to be part of the formal system you need a payment and credit history. We provide that.“