Thursday, January 5, 2012

Visa CEO Says Mobile Service Providers Will Not Become Banks

Mobile service providers will not become full-fledged banks, Visa Chief Executive Joseph Saunders predicts, even though some are doing so, and others are looking at it.

At first blush, the notion that mobile service providers would think about becoming banks is not logical. But the burgeoning interest in mobile-facilitated commerce, with serious mobile wallet and mobile payment businesses, is the reason the idea is not far fetched.

If one assumes that large mobile service providers have to find sizable new businesses to enter as their voice, text messaging and broadband revenue streams mature, there is one over-riding concern.

Firms that earn scores of billions of dollars every year have a scale problem when considering new businesses to enter. If a firm seriously faces the challenge of replacing half its current revenue over a 10-year period, then a firm now earning $20 billion a year has to find replacement revenues of $10 billion a year.

Small business opportunities will not do the job. And most who have looked at the matter generally conclude that only a few opportunities actually have $1 billion a year potential for each and every firm that decides to participate. Among them are mobile banking, machine-to-machine services, mobile advertising and specialized services for business customers.

M2M services, including all sorts of telemetry services, could be a big and totally new business, with key utility and medical customers, for example. Specialized services for business customers, taking the form of embedding communications capabilities into key business applications, likewise is a logical and sizable opportunity.

Advertising already is a huge business, as is retail banking. Some will argue that some form of participation in payment transaction fees is interesting. Others will argue that business simply is not big enough. And that is why some believe mobile service providers, no matter what they now say, will have to consider banking, not just mobile payments.

In Africa, that already is happening. Mobile operators as banks

Keep in mind that Visa is a payments clearing network, not a "bank." Mobile service providers, if banks, would be customers for Visa, not competitors. That is not true of other participants in the mobile payments business.

Saunders also says Apple is a customer that could someday become a competitor, while PayPal already is a competitor, albeit one that also uses the Visa network to clear about half its transactions.

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