Struggling with profits, just open a bank says Orange

Orange has taken an alternative route to combating the profitability challenge endemic to the telecoms industry – it started a bank.

Since the normalization of the internet and the power offered to challenger brands through the implementation of cloud computing, numerous OTTs have risen up to challenge. The result is the former cash cow of voice and text has slowly crumbled. Providing connectivity will not be enough for hungry investors and stakeholders who are used to the plush profits of the 90s, therefore the telcos have to find new ways of making money.

“The finance business is more than a test,” said Jean-François Fallacher, CEO of Orange Polska at a recent Orange analyst day. “This is a real service which has been launched in Poland and we are the first national business in the Orange group to launch a mobile banking service. But you have to realize as well, this is so much more than a just a payment app.”

Back in 2014, Orange Polska teamed up with mBank to launch a new mobile banking service called Orange Finance. While mobile payment services are now not uncommon throughout the industry, the Orange Finance is the complete banking proposition offering current accounts, credit services, direct debit payments, inter-account transfers, contactless payments and withdrawals.

While it would be considered an unusual proposition for a telco operator, the team has experienced some healthy success to date. There are currently around 350,000 Orange Finance customers, targeting an additional 200,000 in the first half of 2017. The French and Slovakian businesses will launch their own mobile banking propositions next year as well, with Spain and Belgium to follow in 2018.

“Our Long-term ambition is to build a business stream which complements the core business,” said Fallacher. “We are a leading telecom operator in Poland which is still a very important area, but it is actually shrinking. The challenge is to turnaround the company and more than compensate this loss. It is unfortunately a market which has reached more than maturity and is now declining quickly.

“How we will deal with this challenge will decide the role of the company. Finding growth in the core business areas is key (mobile, fixed broadband and convergence), but critical to this strategy is to look at adjacent businesses including mobile banking. These are little rivers at the moment, but they are going to grow to major contributors.”

The reality is despite the success of Orange Finance in Poland, the number of markets in which this is a realistic possibility is limited. Poland currently demonstrates a very high level of cut through for Near Field Communication (NFC) technology, especially in Warsaw. The Orange team estimate roughly 90% of terminals in Poland are NFC ready. This technology has started to appear in spots around Europe, but no-where near the same scale as Poland.

For the 350,000 Orange Finance customers currently in Poland, life without a wallet is a very realistic possibility. Customers can withdraw money from ATMs using BLIK technology built into the platform, pay for small items without security verification, use QR codes to automatically pay bills, apply for credit through the app, transfer money to friends by simply entering their phone number and even buy retail vouchers.

The online account and mobile app is updated in real-time with any new transactions as well. Your correspondent was slightly sceptical to start, but after a short demonstration, was suitably impressed.

This is not just an isolated idea though. Orange Poland is tackling a number of areas building towards the USP of removing bills from the customer’s life. If Orange can offer mobile, broadband, TV and banking services, the team can help the customer consolidate payments to one company. It’s a marketing ploy, but a pretty effective one.

The team are also building a presence as an energy reseller and also the provider of smart home solutions. The business is slowly trying to penetrate every aspect of the consumer’s life to recoup lost profits, and if the success of Orange Finance is anything to go by, its going the right way about it.

“I am the father of kids who are aged 16 plus, I see how they are behaving and using their mobile phones,” said Fallacher. “These guys are going to grow up and need a bank account; they will appreciate these kind of services which are digital and mobile orientated; it will appeal to them.

“These are generations who are mobile native and born with a mobile in their hands. The way they look at the world will be different to the way you and I currently look at it.

“It’s long term investment and not something we are going to see a return from in a few quarters. First of all, trust must be built with the consumer and that is what we’re currently doing. We are still a challenger to the traditional finance system, but the digital era opens doors for all sorts of different challengers.

“The more the world moves towards digital and the mobile native generations become prominent, the more open they will be to alternative services such as Orange Finance. It’s only the beginning of the journey.”

Profits are being slowly eroded by a change in consumer behaviour which is being fuelled by the digital era, which is also creating new opportunities in markets telcos may not have thought possible in the past. So how do you counter tumbling profits, buy a bank of course.