Authentication & Security

How Mobile Network Operators Can Help FinTech Startups Scale

MEDICIGlobal Head of Content

“Mobile is a global platform that today supports two-thirds of the world’s population, delivering the connectivity and infrastructure that is powering new digital economies and addressing socioeconomic challenges,” said Mats Granryd, Director General of the GSMA.

There are only two types of conglomerates controlling access to the most important platform for businesses – smartphone manufacturers and mobile network operators. While smartphone manufacturers are best positioned to control the gateway into one’s digital (and with that, physical) life, telecom operators are in a power of connectivity and distribution. The 2017 global edition of the GSMA’s Mobile Economy report reveals that there will be 5.7 billion mobile subscribers by the end of this decade. By that point, the organization notes, almost three-quarters of the world’s population will be subscribed to a mobile service. Subscriber growth over this period will be driven primarily by large Asia markets such as India, which alone is forecast to add 310 million new unique subscribers by 2020.

Despite being largely overlooked as the gatekeepers to scale in global consumer markets, mobile operators have significant advantages to offer to the FinTech community. Startups in the financial sector and mobile operators may just be the perfect allies due to complimentary hallmarks: while FinTech startups bring rapid innovation and flexibility, operators provide a powerful access to market with their marketing and distribution capabilities, as well as some specific enablers, available at scale that facilitate their partners deployments.

The GSMA 2017 study emphasizes at least two main groups of reasons why telecom companies and FinTech startups may be just the perfect allies. Operators provide powerful marketing and distribution channels which can include promotion and download through the operator’s online channels or apps, preload partner application on handsets distributed by the operator, co-branding, first level of customer support, and other specific promotion activities.

Moreover, GSMA notes that that carrier billing dramatically improves the conversion rate of digital contents purchase – simply because the customer can pay seamlessly without the hassle of entering payment credentials.

Telecom companies, holding a deep depository of subscriber data and trust built through decades, can come in handy in the most important moments in customer journey that can make or break a startup service – sign up, sign in, checkout, and KYC.

One of the most recent examples of a forward-thinking tech company leveraging the advantages of a telecom provider for the purposes of cybersecurity and fraud prevention is the Payfone & O2 partnership. Payfone, a leading digital identity authentication company, and UK mobile network operator O2 have signed a partnership contract to protect mobile users against cyber-hacks, account takeover attacks, SIM swap attacks, and other forms of digital fraud. The partnership leverages Payfone’s Instant Authentication for Mobile solution, which is already being used by 6 of the top 10 banks in the United States, allowing UK enterprises to be able to extend fast, secure, and transparent authentication to their customers. The service uses real-time authentication via O2 that works behind-the-scenes with no on-device software.

“Telecoms today have unique access to ever-growing digital and social networking information revealing customer demographics, psychographics, and economic behaviors. Monetizing this underutilized asset could generate billions of dollars in revenue and render operators more competitive,” Ina Goldberg, Head of Data Science, and Kevin Mellyn, Strategic Advisor, SteppeChange, note.

At the center of all these opportunities is data. With large subscriber bases, telecom companies generate rich consumer behavior data on a daily basis, offering a detailed look into one’s personal digital universe.

User authentication is likely to be one of the fastest deals for startup-MNO partnership use cases, along with identity verification and service use authorization. In fact, an initiative by GSMA called Mobile Connect covers even a wider range of advantages telecom operators can offer to vendors. Mobile Connect is claimed to be a secure universal login solution that matches users to their mobile phone, allowing them to log-in to websites and applications without passwords and usernames.

In fact, one of the vendors of Mobile Connect is an augmented identity company called IDEMIA, which recently in collaboration with the Alabama Department of Revenue announced the full-scale deployment of the electronic ID app (Alabama eID) to protect residents against state income tax refund theft. Gemalto, Huawei, and Nok Nok Labs are also among the Mobile Connect vendors.

Business models of collaborative development between tech startups and telecom companies vary, but, as GSMA notes, the principle is always that the operator brings exposure to market and, in return, can provide their customers with enhanced access to differentiating services. Here are some of the models the organization emphasizes:

  1. The operator is a pure distributor (and possibly an enabler as well). The service provider pays the operator, typically through revenue share. In practice, the operator can collect the money for the service provider, e.g. via carrier billing.

  2. Co-branding. The operator usually sells the service and pays the service provider accordingly.

  3. Operator service. The service provider is an enabler and is paid like a supplier, usually per customer or per event.

From the operational perspective, APIs are the bridge between telecom companies and the startup world.

“In the software supporting mobile networks, operator APIs make it possible for third parties to use certain mobile network functions within their applications. As this means giving access to their core assets, mobile operators must weigh security and strategic considerations before opening their APIs. But after several years of learnings from API programs launched by pioneering operators like Telefonica (BlueVia program), Deutsche Telekom (Developer Garden), AT&T (Developer Program) and the GSMA (One API), most large mobile operators in emerging markets have begun to open their APIs too, such as Orange (Middle East and Africa), Axiata (in Sri Lanka with Dialog), and Globe (Philippines).” – APIs: A bridge between mobile operators and startups in emerging markets, GSMA

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“In emerging markets, where mobile operators are the main enablers of the digital economy, operator APIs are a powerful channel for unlocking creativity and giving the startup ecosystem a boost. Every time an operator opens a new set of APIs, it creates a powerful cycle of innovation as startups can combine several APIs to create new services. For example, a startup can offer SMS-based localized content to its users depending on their city or area, and then charge them by deducting the amount from their mobile airtime. Such a service would leverage three operator APIs simultaneously: SMS, location, and direct operator billing. Startups and developers across emerging markets are already building mobile services using operator APIs.”

Above all, mobile operators are also the main actors of inclusive digital transformation. In emerging economies, mobile penetration is found to be considerably higher than banking penetration, which provides telecom companies with an edge for marketing financial products to their clients through greater reach, according to GSMA. As a result, the relation between banking and telecommunication will become increasingly dynamic and complex.

Elena Mesropyan

MEDICIGlobal Head of Content

Global Head of Content, MEDICI

Elena is a research professional with a background in social sciences and extensive experience in consumer behavior studies and marketing analytics. She is passionate about technologies enabling financial inclusion for underprivileged and vulnerable groups of the population around the world.