Mobile operators need to prepare for the shift to digital currencies if they want to remain competitive. That is the takeaway from a report published by European consultancy firm Reply, which also urges the mobile industry to avoid past mistakes.
The report, titled ‘Embracing Bitcoin: Why Mobile Operators Should Prepare for the Digital Currency Shift’, examines the benefits and pitfalls associated with digital currencies, and makes the case that this rapidly advancing technology is already hitting the mainstream in some respects:
“It is now benefiting from a surge of interest, investment and acceptance, with ca. $300m being invested in Bitcoin-related start-ups and high-profile names such as Richard Branson and the Winklevoss twins championing the digital currency movement, and more and more online and physical stores accepting the currency via services such as Bitpay, a service analogous to Paypal.˝
Reply is a large company specialised in consulting, systems integration and digital services. It currently has more than 4,200 employees and annual revenue north of €500m.
Ideally positioned for digital currencies
The report notes that mobile operators are in “an ideal position” to embrace digital currencies due to a number of factors:
- Smartphone penetration is high and smartphones can be used as mobile bitcoin wallets
- Smartphones are already connected to the Internet, easing deployment
- Customers have a certain level of trust with their mobile operators, which could be used to encourage greater acceptance
- Mobile operators have already successfully deployed mobile banking systems in Africa, namely in Kenya and Tanzania, with Paym cited as an example.
Reply said that, as a result, numerous products and services could be offered with relative ease.
These include mobile wallets and currency conversion services. Mobile operators already deal with monthly contracts and tend to hold customers’ bank account details, which means they have a large user base and the necessary infrastructure to deploy digital currency services. Mobile operators could also use block-chain technology for contract signing or for proof of ownership.
Innovative third-person signing and parental services could be introduced as an offshoot. Many jurisdictions, including Britain, do not allow person under the age of 18 to own a credit card. Using mobile wallets, controlled or co-signed by the minors’ legal guardian, could bring practical and time-saving services to young people worldwide.
Mobile operators are uniquely positioned to offer offline payment systems based on bitcoin too, says the report.
This could be achieved in a number of ways, by effecting the transaction phone-to-phone, even when there is no Internet connection available. Connectivity could be accomplished through NFC, Bluetooth or personal Wi-Fi hotspots. The phones would sync back to the block chain once connectivity is restored. However, Reply says this scenario requires further research and testing before it could become a reality.
The report does not mention emerging mobile technologies, including wearable devices and Bluetooth-based beaconssuch as iBeacon and Gimbal, which are widely considered to have long-term implications for the payments industry.
Choice of revenue models
Reply says mobile operators could benefit from three different revenue models should they choose to embrace digital currencies.
Operators could use a commission-based approach, taking a small cut from some transactions. Monthly fees are another possibility, as they would offer a flat rate with no nasty surprises. Or operators could use the ‘one-off approach’, charging for features and transactions on a case-to-case basis.
Mobile operators already have decades of experience in offering a wide variety of mobile plans, meaning each one of these options is well within their reach. The fact that they already send out monthly bills to post-paid subscribers is another obvious advantage.
Reply explains why telecom firms could have the upper hand:
“Competitors to the mobile operators will include third-party app developers and web-based bitcoin services, and a number of wallets already exist. However mobile operators potentially have the ability to provide services over and above what can be done on a single app via their network infrastructure and datacentre facilities already accessed by the mobile phone, and they already have a close relationship with their customers (in terms of bank account details for monthly contract customers, etc.) which could provide another differentiator.”
Reply also sees banks and services like Paym as potential competitors to its target audience.
In its conclusion, the report gives an ominous warning not to lag too far behind the curve:
“However as with many examples in the past (as has been seen with technologies such as WhatsApp/Skype/BBM/iMessage which left the operators flat-footed), if the mobile operators do not take advantage of this shift now, then third parties will do so, and the opportunity for the operators will be reduced by losing the ‘first mover’ advantage.”
The overall conclusion is positive, however, pointing out that the digital currency industry is still in its infancy, and that there is a lot of potential for companies in the telecoms space to capitalise.
“Mobile operators are in a strong position to benefit from this shift, with a large customer base owning smartphones capable of using digital currencies, the network and datacentre infrastructure to implement scalable services, and a trusted brand to encourage the slower adopters,” Reply says.
While, some mobile virtual network operators (MVNOs) like Mobile Vikings have already embraced bitcoin, the majority seem happy to take a wait-and-see approach. If Reply is correct in its conclusions, though, that could be mean the mobile industry losing out in the long term to early adopters in other sectors.
Cellphone image via Shutterstock
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