O2, the UK mobile unit of the Spanish telecom giant Telefonica (TEF) has stepped into the lucrative mobile-money market. The company has tied up with NatWest Bank, a unit of the Royal Bank of Scotland (RBS), to launch the first cash-card services (under the brand “O2 Money”) in Britain by a wireless operator. Approximately 23 million wireless customers of O2 in the UK can freely access the new service.
Under the joint-venture effort, O2 will launch two Visa pre-paid debit cards (O2 Cash Manager and O2 Load & Go) earliest by the middle of August 2009. These cash cards can be loaded in stores or online and customers can use them for purchases over the Internet or in shops that accept Visa debit cards. Users will receive SMS alerts on their cell phones when they make payments providing the updated status of their account balance.
With the brand new mobile-money service offering, O2 is targeting both the adult and youth segments. O2 Cash Manager is being positioned for older customers while the O2 Load & Go service is aimed at children (under 16) with the account being managed by their parents for safety.
Telefonica O2’s venture into the financial services market represents a significant step for the company as it offers a promising new opportunity driven by the rapidly growing converged mobile-money market. Industry estimates reveal that the market for mobile payment could be worth approximately $600 billion by 2013 and amass 110 million users in Europe by 2014, reflecting an enormous business prospect. The cash-card service will be the first in a series of financial services, which O2 is planning to offer in an effort to clinch a significant share of this rapidly emerging market.
O2 UK is currently struggling with declining revenues and sluggish customer growth as the operator contends with weak economic conditions and intense competition, especially from Vodafone (VOD) and Deutsche Telecom (DT). Additionally, reduced tariff rates imposed by the UK regulators have tightened wireless revenue per user in the most recent quarter.
The near-term launch of mobile-money services may provide the company an effective means to contain churn (customers switching to competitors) while providing the company a new revenue stream. We reiterate our Hold recommendation for Telefonica as we expect operating results for the remainder of 2009 to be impeded by economic deceleration in key markets and unfavorable exchange rate movements.
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