September 22, 2015
If you watched TV in the US on Sunday night, it was hard to miss the new Samsung ad taking Apple head on. There were 2 brutal comparisons between Galaxy and iPhone: wireless charging and mobile payments. Yes, Mobile Payments on primetime television! Of course, I am not representative of the average consumer when it comes to getting excited about this, but if you are reading this article, chances are you at least thought about it. Here’s what I was thinking: that ad was TechCo1 Pay vs. TechCo2 Pay. There was no MNOPay or BigBankPay. The big banks at least had their branded card images prominently displayed. The Mobile Telcos? Nothing!
We have of course covered the US MNOs’ misadventure in mobile payments comprehensively. But this inability of telcos to do anything productive outside their core is not a US-only phenomenon. We see it everywhere, especially in mature, competitive, multi-dimensional ecosystems such as in Europe and India. The Tech Giants (Google, Apple, Facebook, Amazon) became tech giants by riding on the backs and shoulders of the telcos, and eventually sitting on their heads to reduce them to dumb pipes...and the telcos allowed that to happen, not because they wanted to be reduced to utilities, but because they couldn’t stop the TechCos from doing so.
Now big banks around the world haven’t had it easy either. They too have been threatened by tech companies, both big and small. In fact, when I first started have intimate conversations with bankers 7 years ago (while I was still a mobile guy), it was clear to me that we both shared the same paranoia...of becoming dumb pipes. To make matters worse for the bankers, the big banks have been at the receiving end of regulatory scrutiny and economic downturns while the MNOs have been largely immune to both, especially since the telecom industry recovered from the circa-2000 bloodbath (a topic that might get covered in mainstream media if one of the current Republican presidential candidates continues to keep rising in her polls).
Yet, as we look around today, not only in mobile payments, but in emerging financial services in general, the financial institutions (FIs) seem to be learning, and acting fast on that learning, unlike the MNOs. You could argue that this is not a fair comparison because payments was never a core capability of the Mobile Telcos, while it was core to the banks, but what about VoIP, messaging, mobile music/video/etc.? The MNOs never figured out how to deal with the tsunami of these OTT (over the top) services over the decades. On the other hand, the banks and payment networks seem to be dealing with this OTT threat by embracing it.
Why do I say so? Just look around and count the number of accelerators, incubators, open development programs and investment / M&A activity where big proud financial institutions are reaching out the two guys in a garage innovators systematically and deliberately. Just look at the popularity of FinTech API article on LTP. Just count how many months ago it was that reputable financial institutions considered it beneath their dignity to discuss cryptocurrencies, considering that better blockchain understanding is the #1 request that we deal with when working with the big banks today. Of course, some of it is probably perception management by the FIs, and I will grant it to some cynics who say that these open programs only strengthen their incumbent status, but what’s wrong with that? In this game of global, multi-industry chess, your chances of winning are higher when you have more pieces on the board, not fewer!
The observation here is not limited to large FIs learning to work with smaller disruptive startups. MNOs had routinely done that (remember location apps and music apps on BREW launched by MNOs with technology from young companies?) before the better startups started ignoring the MNOs and started working with the Tech Giants or attempting full stack disruption with large fund-raises. Both MNOs and big banks (and retailers for that matter) also attempted large joint ventures amongst themselves, unsuccessfully. What’s creditable for the FIs is that they are attempting meaningful collaboration outside their core competencies across industry lines, which is of course the smart thing to do (this is the duh! moment...it’s the smart thing to do because it’s actually the only thing to do!). There are the obvious examples of collaboration on Apple Pay and tokenization, regardless of where that goes next. There are also some examples that might not have received as much press, e.g. Visa teaming up with Monitise to launch mobile payments in India. Not surprisingly, that venture collapsed primarily because they were dependent on MNO cooperation on access to USSD, which never came through.
Again, back to fair comparisons: Google or others trying to launch it’s own phone+service 5 years with wholesale access MNOs’ networks would have been a closer example as we look at how FIs are dealing with their threats today. Today, Apple is selling devices and has relegated the carrier choice to an afterthought. Could the MNOs have averted this outcome? It’s hard to say given the cultural disparity between the Tech Giants and the service providers (which is what the MNOs are; they are wannabe tech companies at best). Could the MNOs have anticipated this outcome? Of course! I saw the process at close quarters, multiple times. They simply could not win the games of chess!
The big banks and other FIs will need to watch out for the same delusional tendencies; they are also service providers, not technology companies. Hanging out with young people does not make you younger when you are already 90 years old, no matter how much younger at heart you might become by using social media or new jargon...and some big banks are literally 100+ years old with deeply embedded cultural traits. Embracing external innovation by working with technology companies is a refreshingly new adventure for the FIs and they seem to be managing it better so far.
How about the Tech Giants themselves in this journey? Well, Google stands out as a disappointment on both Google Wallet and Android Pay, especially as I hear of attempts to cozy up to the MNOs. They have been down that path before, many times. Of course, they might be looking for some closure on the mobile payments asset they bought from the Softcard investors, but that would be the wrong thing to try to collaborate with the MNOs on.
Of course, there’s much more to FinTech than mobile payments, but there are important lessons for everyone to learn from that roller coaster ride. And one final caveat: despite my obtuse generalizations, there are clearly specific companies (both banks and MNOs) and specific thought leaders in both industries who do not fit the mould. We remain optimistic and enthusiastic that all stakeholders in FinTech will continue to build upon past experiences, even while creating new ones for us to enjoy...and for LTP to cover them along the way!