By Brion Bonkowski
Tern Commerce
Approximately 2 billion adults in developing countries have mobile phones but lack access to formal financial services. This captive customer base creates opportunity for mobile network operators, who can sell more than phone service. Some operators have tied wallet solutions to cell phone accounts, but have not been successful due to restrictive maximum balance and transaction amount terms.
Selling prepaid products and services would enable mobile operators to assist unbanked customers by offering a widely accepted financial instrument. And partnering with ISOs, acquirers and third-party service providers would help mobile operators get a fast start. Such partnerships could also drive incremental revenue streams and improve customer stickiness.
Mobile carriers have more access to consumer data than many local governments. They have already solved identity verification, a major barrier to consumer banking. Bankers and card issuers call it KYC (know your customer), and mobile carriers call it CIP (Customer Information Program). Telecom carriers routinely access valuable data points to open accounts and establish credit, including who you are, where you live, whether or not you pay your bills on time, size and make-up of your family, and your credit score.
Carriers can leverage these data points to easily onboard new accounts when customers activate new plans, establish credit worthiness or opt in to financial services. Telecom carriers can also affect consumer credit. They can shut off delinquent consumers' cell phones, which for many people, is not only a means of communication, but also their commerce tool and livelihood.
Successful wallets in developing regions, like M-Pesa in East Africa, are driven by telecom operators and fulfill a significant need in the peer-to-peer space. A growing number of merchants and service providers accept local wallets as a form of guaranteed payment. Many of these wallets also enable microfinancing.
Mobile operators can also become banks. In 2016, Pakistani telco Telenor (owned by Norway's Telenor Group) acquired Tameer Microfinance Bank Ltd., and Orange acquired more than 65 percent of Groupama Banque in France. The following year, Orange launched the rebranded Orange Bank, a mobile-focused retail bank offering savings accounts, credit and payment products.
The increasing dependence on mobile devices makes a clear case for mobile operators to offer banking solutions. However, regulatory challenges may emerge, such as account limits on cross-border money transfers. For instance, M-Pesa customers are capped at approximately $1,000 USD. Mobile wallet providers also limit their customers' ability to transmit more than a fixed amount to and from other countries. Replacing fiat currencies with prepaid cards, issued by globally accepted payment card networks, would solve the capping issue.
Prepaid card programs are typically low risk; they are not credit instruments and can be flexible to accommodate a number of use cases. Mobile operators can brand physical or virtual prepaid cards to enhance mobile wallets. Local banks that issue prepaid cards can offer mobile carriers a dedicated BIN (bank identification number) enabling them to operate and launch new prepaid programs. By partnering with local banks, mobile operators need no banking license and are not subject to money transmission and banking product regulations.
Even mobile operators without a mobile wallet portfolio can launch prepaid products. They can leverage innate capabilities, such as geolocation and secure element security, to strengthen the link between mobile and banking. Mobile carriers know their customers' physical locations; they can work with merchant acquirers to create local prepaid offers and discount programs.
Mobile operators can leverage distribution networks within their respective customer bases, and they can transfer funds without using bank accounts. Mobile operators can outperform new players, like TransferWise and World First, that are trying to displace traditional MTO (money transfer operators) like Western Union and MoneyGram. New players have an uphill battle for market share and global distribution. They may be heavily capitalized, but their customer acquisition and administrative costs are high.
Mobile carriers could displace traditional MTOs and newcomers by lowering customer acquisition costs and leveraging back-office operations. They can offer remittance products targeting specific geographies at discounted rates. Launching a remittance solution with a prepaid product would give them a faster time to market.
A mobile operator that can add a prepaid customer on the sending and receiving end of the remittance can control the entire flow of funds, including the foreign exchange, and effectively create a remittance network. Operators that already have cash top-up locations can serve prepaid customers on both ends, without needing a bank account. Finally, carriers can offer peace of mind by delivering secure banking and bill payment services. A mobile operator that facilitates banking and bill payment can transfer funds between accounts and even cross-border to pay recurring bills. This, combined with a microfinancing solution, would make a mobile carrier an indispensable part of family finances – and more than a utility. 
Brion Bonkowski is founder and CEO of Tern Commerce, www.terncommerce.com, a global B2B prepaid program management platform. Brion is also Director of ROI Payments, www.roipayments.com, and holds several board member positions, including NYPAY, www.nypay.org. He also serves as Chairman of the Kilimanjaro Initiative USA nonprofit, www.kiusa.org, and has summited Mt. Kilimanjaro five times. Contact him at brion@terncommerce.com or 212-234-9741.
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