Digital banking at 5G’s Edge

At Digital Transformation Asia this week, Enshen Huang, Founder and CEO of XENIRO, discussed 5G infrastructures and ecosystems. Find some of his insights in the article below.

The impending rollout of 5G raises the crucial question of how mobile network operators can recoup their investments. The majority of market analysts expect up to $1 trillion to be spent on rolling out 5G networks by 2025. Operators will need to look beyond existing business models of simply being connectivity providers to achieve sufficient return on the new infrastructure.

Mobile operators have a seemingly long history of squandered opportunities when it comes to mobile applications, financial services and customer data. While these markets have been lost to OTTs, the advent of 5G and IoT could provide MNOs with a great opportunity to reshuffle the cards and foster a new wave of innovation.

The rise of the machines

The increasing of internet of things (IoT) devices at the edge of the network are producing a massive amount of data to be computed to data centers. There is a critical need to decentralize data and service provisioning, leveraging physical proximity to the end user.

In addition, those devices are getting more and more autonomous and are now able to interact with little to no human intervention. They form a network of smart and economically independent machines that are able to perform transactions with each other.

Shaping a new class of economic actors

"Financial inclusion" usually refers to allowing individuals and businesses access to useful and affordable financial products and services that meet their needs. What would "financial inclusion" mean when applied to machines?

As financial inclusion has significantly improved among humans in recent years, the same process could be repeated with machines: IoT devices are becoming more intelligent, autonomous and mobile. Equipping them with a bank account (actually a digital wallet) would turn them into economic actors able to deliver a new set of services, generate value and contribute to economic growth.

A new financial ecosystem

The current payment infrastructure that includes banks, credit card networks and payment gateways is tailored for humans but cannot address the needs of 29 billion+ IoT devices that will populate the world by 2025. The legacy infrastructure cannot:

• Provide connected devices with a digital wallet (similar to bank account for humans)


• Process billions of transactions in real-time through 5G applications


• Offer competitive transaction fees (payment processors usually charge 3%+$0.10/transaction on average)

An exciting and unexplored use case for MEC servers would be to deploy distributed ledger technology (DLT) through them. MEC infrastructure is distributed by nature and is the perfect architectural fit to run a DLT solution; every MEC server could turn into a "digital bank", run decentralized applications (DApp), process transactions for a fraction of the fees (via smart contracts) and generate new revenue for mobile operators.

Such a network can the potentially become the world's biggest payment gateway for IoT devices. There are massive opportunities for operators in leveraging their lightning fast 5G edge infrastructure to disrupt the way machines and humans transact and interact.

Key benefits for MNOs:

• New business model as payment gateway processor - MEC servers are turned into profit centers.


• OTTs will be required to partner and monetize within MNOs’ ecosystem. They will need to develop DApps (which include smart contracts) using operators' DLT as their base layer, opening up an entry point into the platform ecosystem.


• Pushing the next evolution of Cloud 2.0 (distributed and decentralized nano data centers) at the edge of the network. A perfect opportunity to compete with web-scale players.

Disrupt or be disrupted

To illustrate how operators could capture a share of the revenue pool from cloud service providers and 3rd party payment processing entities, let's look at an enterprise example - Lyft's 2018 financials as reported in the company's recent IPO prospectus.

• Mobile operators capture the lowest (average $50 million) portion of revenue within this ecosystem.


• Third party payment providers such as stripe and cloud service providers have the biggest ($410 million) revenue slice.

Top tier, on-demand transportation companies such as Lyft, DiDi and Uber have been testing autonomous vehicles to power their future businesses. There is a tremendous opportunity for such companies in deploying their solution onto a MEC-based distributed ledger, enabling optimized network utilization through MEC/Cloud 2.0 and payment processing, at a lowered cost. This creates new revenue streams for MNOs, and enables them to monetize edge resources and infrastructure.

Current payments systems require intermediaries such as payment gateways to process the data, credit card network to check balances across multiple banks and bank card issuers to cover credit and payment default risk. Payment processing fees average 3%+$0.30 per transaction and go to those intermediaries.

With DLT technology running onto mobile operators' MEC nodes, such intermediaries are no longer required and every operator can process transactions while running the DLT solution with near zero marginal cost. Assuming an average 1% fee on every transaction, Lyft would save up to a potential $310 million.