Juniper Research estimates that mobile operators will generate $9 billion in revenue by 2022 from carrier billing. The main growth drivers for the volume increase are music and video streaming merchants.

The dominant business model used by such merchants is subscription billing, where access to entertainment is sold on a daily, weekly or monthly basis and users are automatically charged at the end of the previous cycle.

However, a significant number of subscription payments for these merchants fail and the customers churn out. The primary reason is insufficient account balance as most consumers in emerging markets use a prepaid SIM card.

In this case study, we take a look at how Fortumo is resolving the problem together with telcos to increase user retention and maximize revenue for all sides involved.

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Note: This is a guest post by Nitesh Patel from Strategy Analytics. The consulting company provides strategic and tactical support to global clients through a range of customized solutions: multi-country primary research, user experience design, on-device tracking projects and B2B consulting and white papers.

The appetite of consumers for accessing digital services on their smartphone shows little sign of relenting across both advanced mobile broadband markets like the USA and developing mobile broadband markets like India.

Data from Strategy Analytics’ AppOptix telemetry platform shows the average US Android smartphone user spends 231 minutes on their smartphone per day and generates over 730 MB of data. This compares to 143 minutes per day and nearly 446 GB of data in India.

These totals have increased notably across both countries over the last two years. Consumers have become so inundated with instant gratification – they want their music & videos streaming instantly, their photos automatically backed up, endless notifications for apps and social networking to stay connected for fear of “missing out.”

Smartphone data use is being driven by a variety of services, primarily social and communication applications. Despite the recent negative publicity around the security of user data, usage of Facebook remains robust. Mobile web browsing also remains popular and consumption of data hungry video content is increasing. With LTE penetration growing in emerging markets like India video use has risen substantially.

Reliance Jio indicates the average user is generating 10 GB per month of data, driven primarily by video. Social media has become a heavy platform for video content discovery and consumption which is causing disruption in the mobile video space as many consumers interviewed by Strategy Analytics have indicated less time spent on YouTube and more time spent on Facebook because simply put: “The videos now find you, you don’t have to try and find the videos anymore”. With video in particular consumer behaviors are continually in flux:

Last but not least, the growing expenditure in mobile advertising (in absolute terms and as a share of overall digital advertising) reflects a rise in potential of mobile commerce, for digital goods and also physical items and services. Digital consumers are therefore able to not only access services anywhere and anytime but are also ready to transact.

Beyond mobile phones

The variety of connected devices that consumers will be able to use to access and engage with digital services, whether for communications, information, entertainment or commerce is set for continued growth. For example, a year ago smart speakers were not a mainstream home product but sales are set to approach 70 million globally by the end of 2018 and will more than triple by 2023. Outside the home the number cars shipped with mobile broadband connectivity will almost reach 40 million this year and double by 2025. Sales of wearable devices, primarily smartwatches, continue to rise while smartphones continue to ship close to 2 billion annually.

Providers of connected services must have a clear understanding of the preferences of target groups of customers as it relates to which devices they will use to engage with their services. One-size-fits-all approach across different connected devices is unlikely to deliver an optimal user-experience - so what features and capabilities and content should be prioritized for each connected device?

Despite the growth in ownership of connected devices smartphones will remain the primary device that consumers will use to connect to digital services, and even more so in lower income emerging markets where multi-device ownership will be less prevalent.

Given the evolving needs of today’s digital consumers’ the providers of digital services must address three areas in order to succeed:

• Understand the needs and preferences of target audiences and segments e.g. priority features, platforms, devices, business models and willingness to pay;
• Design a superior user experience; not just for mobile but optimized for a variety of digital channels and devices. Consumers are often times difficult to persuade to move outside their comfort zones when it comes to shifting to different technologies (e.g. mobile payments, using chatbots, etc.) and if the experience is not better, or at least just as effective, they will quickly abandon it, with the unlikely possibility of ever returning. This is especially true for the recent resurgence of voice in the car through the likes of Amazon’s Alexa, Google Assistant (Android Auto) and Siri (Apple CarPlay), but many users have been so put off by previous voice recognition systems in the car, there is little desire to even try it for many consumers;
• Be ready to convert usage into revenue by providing flexible, secure, reliable, and frictionless payment options for consumers.

India’s mobile population is booming. According to COAI, there are now more than 1 billion mobile users in India, with approximately 10 million connections added each month. India already overtook the US in smartphone users at the end of last year. India’s digital ecosystem growth is primarily driven by two trends.

The first is low-cost smartphones becoming affordable for people in smaller cities and rural areas, while previously smartphones were mainly available to higher-income people in metro areas. The second reason is the significant reduction in data tariffs due to fierce competition between telcos, kicked off by Jio giving Airtel, Vodafone, Idea and the other existing players a run for their money.

Digital merchants have not overlooked this growth: local companies like Hotstar, ALT Balaji and VOOT have already been entertaining the audience for years and international companies including Netflix, Amazon and HOOQ have also entered the market.

Approximately 10% of India’s mobile audience consumes at least one streaming service, reflecting the quality of content provided by these platforms. But the providers are now facing a major challenge: how to monetize these users? Even Hotstar, which captures the majority of the streaming market, has been able to successfully convince just 3-5% of its user base to start paying for the service. Why?

In January 2018, India had 850 million debit cards and 37 million credit cards in use. Therefore it would seem almost all of the mobile population would have easy access to online payments. Yet when we look at the usage of payment cards, the picture is different: 80% of transaction value done with debit cards accounts for ATM withdrawals only, which means India is a long way from using banking services for online and digital transactions.

The main issues causing low usage of cards for online payments are low income in smaller cities and rural areas; fear of online scams and frauds, as well as the apprehension to sharing their personal details in online environments. The alternative that consumers have available are digital wallets, but their main use cases so far have been restricted to utility payments and SIM card recharges. So how can digital merchants convert more of their users?

To begin solving the challenge, digital merchants need to review their pricing. Lower consumer income and the expectation to get content for free means services need to cost less - there simply is no way around that. Amazon Prime is excellent proof that localised pricing works: despite offering only a premium version of their service, they have managed to grow into the third largest streaming provider in the market by keeping pricing low (<$2 per month).

The other approach to take is to review the payment methods supported. 80% of bank-based transactions occur offline (ATM withdrawals) which means consumers need some other means to pay for online content.

Direct carrier billing offers this, as a secure and convenient payment mechanism that’s available to any mobile phone owner. Beside the increased consumer coverage with payments, it also opens up doors for digital merchants to work with telcos on marketing. Digital services require mobile data consumption, which in turn is the bread and butter of telcos: meaning there is strong incentive for telcos to promote these services.

Interested in learning more about the Indian market and how to grow your revenue here? Check out our recent market report and the potential of subscription payments, or get in touch with us directly.

Fortumo's latest white paper looks at how digital service companies can work together with cable & satellite TV providers on bundling their services. The goal of such partnerships is to achieve user and revenue growth while creating loyalty among customers of both companies.

TV providers have similar capabilities in user acquisition to telcos and they also have established a billing relationship with their audience. In many cases, telecommunications companies provide subscribers with mobile services, television as well as a broadband connection which means the bundling effect can be multiplied across multiple channels.

In this white paper, you will find answers to the following questions:

• Who are the biggest TV companies to seek out bundle partnerships with?
• What models of partnership can be leveraged with TV companies?
• How does the bundling experience look like from the consumer perspective?
• How can Fortumo support your bundle launches through our Trident bundling platform?

Leave your contact details below and you'll be able to download the white paper immediately!

When Fortumo launched in 2007, carrier billing was used for selling very simple content. Back then, gaming, ringtones, wallpapers and jokes consumed on feature phones made up the majority of digital content. 10 years later, and companies including Apple, PayPal and Taxify are using it to reach new paying audiences.

App stores, fintech, e-commerce and ride sharing companies have been able to implement carrier billing thanks to its significant evolution over time. The payment capability of most telcos today matches that of credit card payment solution providers. But myths about Premium SMS and low payouts are slow to die.

Next week, we’ll be tackling these myths at Merchant Risk Council. From May 14th to 16th, Europe’s leading payments experts will gather in Dublin and we are honoured to share with them our view on the evolution and future of carrier billing. We’ll be doing it on stage together with our good partner Badoo.

Why is carrier billing growing in importance to digital merchants? How to evaluate alternative payment methods? What additional value beyond payments can working with telcos give? Join our presentation at 11.45AM on May 15th to find out. If you wish to set up a meeting during the event, reach out to us directly.