MNOs giving away Billions to Banks.

March 6, 2012

If you can solve Authentication.. everything else is just accounting

–          Ross Anderson, KC Fed, March 2012

Good news: Someone is reading my blog.

Bad news for Mobile Operators…. It is the Banks.

3 years ago I wrote $5B Mobile Operator Opportunity: KYC.  If I were in control of ANY aspect of mobile.. I would work to ensure that privacy and anonymity reign. Google/Apple should work to ensure that mobile browsers and apps have VERY WELL DEFINED controls around user identity, tracking (ie cookies, fso, …), location, payment, … Similarly mobile operators should have VERY TIGHT controls around who can leverage tower information, customer information, .. for location and “hidden” identification of users.

Today I learned that one of the top 3 banks has struck a unique agreement with the ISIS telecos to do KYC, account opening, and really act as an agent. This is just brilliant for the bank… as it decreases its cost to acquire and cost to serve. However striking a one off deal with a big bank is short sighted.

The Mobile Operator KYC/Agent opportunity is TREMENDOUS if MNOs can focus a business around this and make KYC a generic service. As I stated in Future of Retail Banking: Prepaid?, Retailers and Mobile operators have a competitive advantage in their physical distribution. Retailers like WMT, Tesco and Target are doing a tremendous job here. International Mobile Operators like Docomo, Vodafone, Sing Tel, SKT, Bharti are also far in their planning. US Mobile operators are completely out of the game…. Perhaps things like this slip to “deal” because they “outsourced” the strategy to a dysfunctional consortium (ISIS, see Walled Garden) .

MNOs why would you want to be an agent for a SINGLE bank, when you could sell a service that could be used by every bank, every commerce company, every government agency… to the BENEFIT of your customer (example mobile esignature below).

Operators, let me be specific in my recommendations.

1. The mobile device will become the key point of confluence between virtual and physical world. You can only take a role in the economics if you can retain the integrity of customer relationship (and data).
2. Don’t look for a “deal” to distribute a single bank’s products. Create a business around KYC leveraging your distribution. Make the banks bid for your capabilities. This is akin to “agent” networks in emerging markets
3. The critical piece of payment is authentication. You have many unique capabilities here for your post-paid plans. You ID, phyisically sight and credit check consumers. What if you also registered them for an “e signature” process… a generic security process which could be re-used in banking, commerce, government, health care
4. You have a “token” today.. it is phone number. Please just go buy Payfone and make it your new payments AND KYC focus.
5. Control customer data and location. My top recommendation is watch out who is using consumer location data.. just as banks want to own the payment rails.. ensure there are tight consumer protections around this.. YOU SHOULD BE THE TRUST ENTITY (hey that rhymes).

I believe that Apple gets this, as we can see from their acquisition of Authentec. Creating a digital storage locker for identity.. is much more important than creating one for music.. (hint).

I also think Square get this.. and has built a business around identity as the key for physical commerce AND payment. Given that Square and Apple are also all about creating great consumer experiences.. with a maniacal product focus.. I would love for them to get together..