Entry No.104c

IT Writers Awards

Standfirst
Telstra may have some financial services players looking over their shoulders in anticipation of an all-out assault on their hallowed turf. But they only need worry about payments and portals right now. Cameron Tomes reports

Publicity, both good and bad, is such a wonderful asset. But when you haven't gone out of your way to generate hype, innuendo and expectation the bang can often be hardly worth the wait. 

Whether Telstra's much touted hijacking of the financial services industry is the out-of-control brainchild of an insecure industry devoid of real differentiation, or in fact the telco's own subtle attempt to kick-start a few mind games prior to a swashbuckling entrance, is a moot point.  The fact that, despite barely focussing on financial services, Telstra has managed to strike fear and trepidation into the hearts of Australia's major institutions suggests that non-traditional financial services conglomerates are upsetting the applecart and stealing some serious mindshare.  Yet Gerry Sutton, executive director - Emerging Business for Telstra Retail was keen to distance the telco from any supposed links to a financial services invasion. "We have no ambition at this stage to be a bank or buy into a banking relationship," he said. "We are not a challenger to the banks as a provider and manufacturer of banking products, either." 

Sutton suggested that while there are some very attractive financial services market segments, such as transactions and payment solutions - areas which Telstra coincidentally already owns bucket loads of expertise - building a full-scale banking enterprise is not on the agenda. "It became very clear to us early on in the piece that we weren't in a position to provide an end-to-end financial services solution to customers.  "Besides, there are many more strategically important things we need to be doing with our capital reserves than to look at a big push into financial services . "Our challenge to build much bigger businesses is more driven by where the telecommunications industry is heading, not where financial services is going," Sutton argued.  Sutton was referring to Telstra's much publicised marriage proposal to Hong Kong-based telco-cum-multimedia giant Pacific Century CyberWorks (PCCW), which was consummated in April this year.

Last month the two conglomerates cemented their plans by forming three business units - IP Backbone Co, a regional Internet/data company; Wireless Co, a mobile phone/wireless technology venture; and Internet Data Centres (IDC) Co, a data centres joint venture. "It's vital that we don't get distracted from this strategy," Sutton declared.  He added that Telstra's corporate structure and financial reporting criteria are in no way geared towards operating in the financial services arena.  "Our balance sheet is not geared up to operate in that way and we would need to be considerably restructured to even consider such a venture. Which is one reason why Telstra has no intention of applying for a banking license in the foreseeable future."  That said, where do Telstra's minimal interests in financial services lie? According to Sutton, Telstra's financial services aspirations are driven on two fronts - payments and transactions solutions and online portal content aggregation services. You would have to have been on extra-terrestrial vacation not to have realised that Telstra has grand plans for its retail portal, Telstra.com, judging by the advertising and promotional muscle leant to the service. "We want to be the dominant channel to market," Sutton said. 
"Through Telstra.com we believe we have a compelling place to enable transactions and hence interact with the major financial services institutions."  The second component, carriage services and payment networks, is widely regarded as Telstra's rejuvenated bread and butter. Financial services is merely one vertical market on the telco's drawing board upon which ASP-related content and hosting services will be deployed - all conveniently utilising Telstra's existing broadband network.

By embracing all things aggregated and intermediated, Telstra is strategically positioning itself as a retailer of financial services products and services. Its hope is that more competition will be derived from the online portal brigade rather than the need to launch its own range of financial services products. "We see this supermarket capability of concentrating product as a growing market trend," Sutton said. "Portal strategies are being adopted globally and financial services organisations are starting to accept that this approach is an effective way to attract customers." Part of that portal focus has centred on global online service expansion. While the likes of Commonwealth Bank and National Australia Bank have targeted the burgeoning European market and ANZ Bank has revealed its Asian preference, Telstra suspects there is still much global business to be generated from aggregated online portals. "It is a recognition that the integration of financial services content with the Internet is a very attractive expansion proposition for Telstra and is good for our partners' offshore expansion plans. "There's been some really good pioneering work done online by financial services organisations, which has created a much clearer picture of where each player is going.  "The question is whether you want to make money out of your transactional customer base or build annuity out of products," Sutton argued. However, Telstra.com patrons might have to wait some time to embrace the organisation's financial services portal experience. Sutton claimed that while "it's still very early days" as far as major announcements are concerned, some initiatives could be unveiled "in the not too distant future".

At the other end of the spectrum, Telstra is no doubt salivating over the endless opportunities that are yet to present themselves in the payments and transactions arena. Telstra fancies its long-term chances of success in these segments because, unlike the financial services sector, the telco already owns the infrastructure upon which many an EFTPOS and ATM network has been built. Merchant acquisition isn't an issue either. With over 7 million residential and small business customers and 3.4 million mobile customers in tow, according to last year's annual report, Telstra already owns a healthy platform through which it can extend ASP and online content services.  And if the telco can't do the job using its own resources, plan B is always acquisitions. In July this year Telstra paid $515m to acquire e-commerce payments solution provider Keycorp under the proviso that Telstra's EFTPOS payments carriage, installation and maintenance business be combined with Keycorp's activities.

According to Sutton, the deal represents "a good, sensible approach" to expanding Telstra's horizons through payments and transaction services that businesses are using today.  "We've effectively taken what has been an underperforming internal asset and launched it onto a much bigger platform," he said, referring to the addition of Keycorp's much-publicised payments expertise. "Telstra can now expect to supply a much larger piece of the payments package for customers, not just standalone components.  "Our focus through Keycorp is to work with financial institutions and their merchants by providing substantial value-added services on top of a strong payments network," he added.

A substantial proportion of the combined entity's payments focus will centre on the EFTPOS segment, which according to statistics from the Australian Payments Clearing Association, produced terminal growth rates of 2200% (265,000 terminals) last year along with 49 million transactions (see EFTPOS transactions on the rise table). "The EFTPOS network is one of the last great networks that's not Internet-enabled," Sutton observed.  "While I'm not totally convinced that the Internet is stable and reliable enough to deliver value-added services to customers via a mobile EFTPOS network, the option of delivering loyalty programs, sympathetic marketing programs and advertising campaigns online will make Telstra a very attractive partner for the financial services sector."

 Sutton was careful not to give the impression that Telstra plans to usurp the rights of financial institutions to payments and transaction data. However, he argued that Telstra and Keycorp could deliver cost efficiencies and service enhancements that would further strengthen the relationship between institutions and merchants. "We're not doing anything different," Sutton argued.  "Whilst we intend to improve the quality and cost of payment and transaction operations we've got no intention of changing the relationship between merchants and the banks.  "I don't think this idea would be threatening to them. Instead I suspect those organisations would be very keen to offer their expertise in this area," he added.  "The banks clearly understand that Telstra wants to be a major player in terms of facilitating and managing transactions."

And you can't mention Telstra, financial services and transactions in the same breath without recognising the telco's eternal optimism for the future of its WAP-enabled services. Despite countless industry pundits heralding the death of WAP before the technology concept has had chance to reach critical mass, Sutton has no doubt wireless applications will represent a "profitable business" for Telstra.

Westpac signalled its WAP intentions last month by forming an alliance with Telstra. "Our relationship with Westpac is important as it gives us an opportunity to create other financial services partnerships.  "Telstra has already built 40 WAP-enabled applications and there's no doubt that over the next two to five years the quality of WAP content will further enhance customer experiences," Sutton predicted.

So can the financial services sector safely discount Telstra as a direct threat, at least in the short term?  According to Sutton, the telco is in "no particular hurry" to launch itself into financial services.  "We're merely trying to establish a presence without investing hundreds of millions of dollars.  "Sure, we could dabble in financial services, but the challenge for Telstra has always been to build billion dollar businesses, not dabble," Sutton concluded. J

Back to Most Controversial 
Top of page

Content Copyright © the author/publisher listed above

Design Copyright © Consensus Pty Ltd

This web-site uses frames, click here for the full picture