Saturating traditional business forces telcos to embrace fintech

Arabian Post Special

With core telecom businesses reaching maturity, characterized by high mobile penetration rates exceeding 100% in some countries, the region’s telecommunications companies are embarking on newer ways to boost revenues by embracing technology to expand their footprint and diversify their income sources . Fintech appears to be a most dominant theme.

UAE telecom giant e& has set an  ambitious target of generating 40% of its revenue from tech-related businesses by 2030 underscores the transformative potential of this approach. e&, formerly known as Etisalat, has made a bold move by aggressively entering the fintech space. This strategic shift signifies the immense potential telcos see in financial technologies.

The move is prompted by the fact that the GCC region has a burgeoning young population with high smartphone penetration, creating a fertile ground for mobile-first financial services. Telcos, with their vast customer base and existing mobile payment infrastructure, are ideally positioned to offer innovative fintech solutions.

Integrating financial services with existing telecom offerings can create a seamless and convenient experience for customers. Imagine managing your mobile wallet, paying bills, or even applying for loans through your existing telecom app. This level of convenience can be a major differentiator in a competitive market.

Fintech presents a lucrative opportunity for telcos to generate additional revenue. Transaction fees, commissions on financial products, and even data monetization through financial services analytics can all contribute significantly to the bottom line.

Their success will be closely watched by other GCC telcos, potentially triggering a domino effect as they too explore similar diversification strategies.

A recent report by S&P Global Ratings highlights this trend. The report forecasts a modest annual growth of 1-3% for core telecom services in the GCC from 2024 to 2025. In stark contrast, the technology sector is expected to witness a boom, with growth projections reaching 8-10% during the same period. This presents a compelling opportunity for telcos to tap into a high-growth market and unlock new revenue streams.

Several factors are driving this tech-focused transformation. Firstly, GCC governments are actively pursuing digitalization initiatives, fueling significant investments in Information and Communication Technologies (ICT). This creates a fertile ground for telcos, given their leading market share and established relationships with governments. For instance, stc’s ICT arm, Solutions, reported strong revenue growth in 2023, with a significant chunk (around 44%) coming from government clients.

Secondly, the rollout of next-generation 5G networks is acting as a catalyst. As 5G becomes ubiquitous, it will pave the way for the widespread adoption of technologies like cloud computing, big data, and the Internet of Things (IoT). Telcos are well-positioned to capitalize on this trend by investing in data centers and subsea cables that will form the backbone of this digital ecosystem.

However, this transition is not without its challenges. Telcos venturing into unfamiliar territory like fintech will need to build robust regulatory compliance frameworks and navigate the competitive landscape of established financial institutions. Additionally, developing and acquiring the necessary technological expertise will be crucial for success.

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Also published on Medium.