When a telco turns to banking
By Robin Arnfield
Rogers Communications, Canada's largest telco, has moved into banking and plans to issue credit cards — both a plastic version and a mobile version that will be stored on Rogers smartphones.
The mobile carrier received the go-ahead in September from the Office of the Superintendent of Financial Institutions to launch the credit card business. It's the first Canadian telco to enter the credit card market, and the move could have a profoundly disruptive effect on the country's banking industry.
The OSFI, Canada's banking regulator, had granted a banking license to Rogers in May, following an application process that took nearly two years. Rogers plans to launch the plastic credit card in 2014, following a pilot with a number of its customers. It is expected to follow with a mobile version.
Rogers credit-cardholders will be able to accumulate Rogers First Rewards loyalty points; the program will let them earn points from spending on eligible Rogers services, which can then be redeemed for other Rogers services such as video-on-demand and wireless long-distance calling packs.
Rogers is Canada's largest mobile carrier, with 9.4 million mobile subscribers in the second quarter of 2013, followed by Bell and Telus, both of which have around 7.7 million mobile subscribers.
In addition to its telecoms business, Rogers operates Canadian cable TV and Internet subsidiaries. As of June 30, Rogers had about 1.9 million Internet customers and 2.2 million cable TV subscribers.
Rogers is the first telco to enter the Canadian credit card market, which is dominated by Canada's six largest banks. In addition, two leading retailers, Canadian Tire and Walmart Canada, own financial services subsidiaries offering credit cards.
In August, Canadian Tire said it would seek a financial partner for its C$4.4 billion ($4.27 billion) credit card business to reduce funding risks, according to The Globe & Mail.
|It's unclear how Rogers Communications' new credit card will impact the CIBC mobile wallet that is hosted on Rogers smartphones.|
Given the Canadian credit card market's heavy saturation, Rogers' move is ambitious, said Les Riedl, senior managing partner at the U.S.-based consultancy Bank Solutions Group.
"Canada is one of the most heavily 'carded' countries in the world," he said. "All the top six Canadian banks have a credit card penetration rate of at least 50 percent of their customer base, and two of them have a 60 percent penetration rate. It's difficult for a new entrant to launch credit cards in Canada, although Rogers will have the advantage of being able to target its extensive customer database."
Rogers will pre-select those of its customers who qualify for a card based on their risk and spending profile, according to John Mavriyannakis, senior manager at Deloitte Canada. "It could write to these subscribers to say: 'You've been pre-approved for a credit card. Text this number and your card will be sent to you."
The telco will eventually offer the card to non-customers as a way to get them onto its mobile, TV and Internet platforms, said Christie Christelis, president of the Canadian research firm Technology Strategies International. "Even a 2 percent increase in mobile, TV and Internet subscribers from marketing the card would be very profitable for Rogers," he said.
Since Canadians carry multiple credit cards, one challenge for Rogers will be persuading its cardholders to make its card top-of-wallet. "The fact that Rogers will offer prepaid airtime as a reward to its cardholders will be a differentiator from other issuers," Riedl said. "No other Canadian issuer currently offers mobile airtime rewards. But if the Rogers card is successful, some banks may partner with telcos to offer airtime as a reward to their credit cardholders."
Mavriyannakis said Rogers becoming a bank is the most disruptive event to hit the Canadian banking industry since the introduction of debit cards in 1990.
"Canadian banks launched debit cards to combat the issuance of checks," he said. "Due to debit, the number of checks written in Canada has really fallen."
Depending on how successful Rogers Bank is, Telus and Bell may follow suit and apply for banking licenses so they can issue credit cards. That is seen as a highly disruptive game-changer, as Rogers, Telus and Bell collectively have as much customer reach as all of the Canadian banks combined.
"Bell and Telus will closely watch what Rogers is doing with its credit card plans, as will all the Canadian telcos," Mavriyannakis said. "Foreign telcos will also watch Rogers, as there is a global opportunity for telcos to issue credit cards."
It's too early to tell what effect Rogers' launch of a credit card will have on its mobile wallet partnership with CIBC, one of Canada's largest banks. In May 2012, CIBC and Rogers joined forces to enable CIBC credit cardholders to make NFC payments with Rogers smartphones. CIBC uses Giesecke & Devrient's service provider trusted service manager platform to download customers' card credentials to NFC-enabled Suretap SIM cards on their Rogers smartphones.
A service provider TSM's role is to enable the real-time over-the-air downloading of issuers' card credentials to the secure element in a smartphone SIM card. A second kind of TSM, known as a secure element manager TSM, provides encryption and management of card credentials within SIM card secure elements.
The CIBC-Rogers service launched in Toronto on Nov. 2, 2012, when Canadian triathlete Simon Whitfield used a CIBC mobile payment app on a Rogers smartphone to make a purchase at a Tim Hortons.
Mavriyannakis said Rogers issuing its own branded credit card may kill the CIBC mobile wallet that Rogers hosts on its smartphones.
Riedl said Canadian banks were not pleased to see Rogers entering the credit card market as a bank in its own right. "Rogers could have set up a co-branded credit card deal with a bank, where the bank acted as issuer for Rogers," he said.
Suretap SIM cards are available for a number of BlackBerry devices, as well as for several Android-based smartphones from LG and Samsung.
David Robinson, Rogers' vice president of emerging business, said the telco currently has thousands of Suretap SIM cards in the market. "We've heard from our customers that they're enjoying using mobile payment applications for quick purchases including coffee, snacks and groceries," he said.
On Nov. 7, Rogers announced plans to launch the Suretap mobile wallet on a number of NFC-enabled Android and BlackBerry smartphones. The Suretap wallet will offer a co-branded virtual Rogers Prepaid MasterCard and gift cards from select national retailers as the first cards available for download.
Rogers said additional cards will soon become available for download to the Suretap wallet, including payment cards from multiple banks and payment networks and loyalty cards.
Rogers also announced on Nov.7 that it had signed a strategic agreement to work with MasterCard to support mobile payment innovation in Canada.
Rogers plans to play a major role in providing the infrastructure for mobile payments in Canada. Its vision is to store credit and debit cards from multiple issuers as well as loyalty cards and identity cards on its subscribers' smartphones. "Rogers plans to act as a secure element manager TSM, enabling Canadian issuers to store their card credentials on Rogers smartphones' SIM card secure elements," Robinson said. "Rogers provides a standard interface, which enables card issuers' service provider TSMs to integrate into its secure element management platform."
Separate from its own TSM business, Rogers is a partner along with Bell and Telus in EnStream, a joint venture established in 2005 to help Canadian financial institutions, telcos and merchants introduce mobile payments. EnStream's business model is to act as a TSM aggregator, ensuring that any Canadian issuer can store its customers' card credentials on any mobile operator's devices.
Because Rogers will want every Canadian financial institution to puts its cards on Rogers smartphones, Riedl said, it will need to keep its credit card and banking business separate from its TSM operation.
"The banks will see Rogers Bank as a competitor, so they may be reluctant to partner with Rogers in mobile payments," he said.