Carrier billing fees: why less has become more

Carrier billing fees: why less has become more
  • Carrier billing has shifted from VAS to complex digital offerings

  • Merchants expect payouts similar to card-based payments

  • Automation of DCB processes keeps costs down and makes payouts competitive

  • For telcos, lower margins are compensated by new segments and bigger volumes

Over the past decade, mobile entertainment has changed drastically. Instead of feature phones and simple consumer VAS services, we now have smartphones and complex digital entertainment offerings.

For carrier billing companies, this has meant a change in customer segments and product requirements. Not all companies have been able to keep up and focused on their legacy business. Since that business is declining, some have been forced to close shop while others have been acquired by the competition.

For telcos, VAS has been an excellent business with great margins but always overshadowed in volumes by device sales, calls, data and messaging services. Today the legacy VAS business is in decline because entertainment has shifted elsewhere. VAS is also a frequent cause of customer complaints and overhead: in extreme cases, leading to hefty fines (US & Australia).

On feature phones, telcos had the monopoly of distribution and monetization channels and dictated the commercials terms. Modern digital merchants have many other ways to reach their audience and collect payments from them. This means the terms have changed.

As the old VAS business is slowly fading out, telcos need to make a choice. Either stick with the old commercials or change the strategy to focus on getting new and growing segments on board. But if the focus is on growing new business, what needs to change?

The first thing any merchant looks at when assessing new payments solutions are the fees. With VAS services, telcos were able to keep a significant portion of the payment for themselves. This was justified as they had some of the few effective channels available for mobile marketing, but also due the additional overhead such services created. If we exaggerate a bit, the approach was to start with 0% payouts to merchants and raise it just enough so that merchants would accept it.

With the modern digital business, this approach needs to be turned on its head. Companies like PayPal only take 2.9% + $0.3 of each transaction and even less than that for major merchants with big volumes. In order to compete with the likes of PayPal, the question telcos need to ask is: “What’s the absolute minimum we can charge while keeping the business profitable?”

It seems like a drastic change, but this is because carrier billing has historically been a rare exception in terms of payout levels. If we look at the payments industry as a whole, the approach everywhere else is to offer low margins, compensated by significant payment volumes.

VAS services were unable to bring carriers these significant volumes, but the merchants of today are different: app stores, streaming, productivity tools, digital publishing, parking, insurance etc.

Such merchants have substantial, low-risk payment volume. Their primary source of revenue is credit card payments and the commercial offering of many telcos comes as a cold shower to them. So how bring about a commercial offering that would be acceptable?

If telcos reduce their own margin on payments, something else needs to compensate it to keep the business viable. Bigger volumes are one factor that helps achieve this. But bigger volumes also cause overhead and manual work. This means the other critical aspect is to increase automation and reduce the costs for operating the DCB platform. Some ideas to consider for this are:

  • Providing accessible online recharge channels for prepaid subscribers and motivating their usage through offline topup surcharges

  • Automating the process of subscriber invoicing and debt collection

  • Automating the merchant approvals and user acceptance testing processes

  • Automating consumer support and refunds

Telcos have successfully automated many different aspects of their business. Several Nordic markets have made the shift from call centers to self-service helpdesks. The subscribers are able to troubleshoot their issues as before, but the overhead is substantially smaller. A similar approach can be applied to carrier billing to keep the business running.

Automation helps keep costs down and allows telcos to offer merchants competitive payouts comparable to other payment methods. This means opening up of new, high-volume and growing business segments.

Put yourself in the merchant’s shoes: if carrier billing was just one of many payment methods available to you, would you yourself accept the offer that you’re giving out today?

Annual news recap 4/5: digital

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Let’s take a last look at the biggest events and news of the 2018 digital services market. India took the spotlight more than once, Disney dived head first into the competitive streaming scene and several ICOs, IPOs and other big deals made the news. Refresh your memory and check out the 2018 digital ecosystem insights below.

  1. Business Insider: $10 billion Dropbox has filed the paperwork for an IPO

  2. TechCrunch: Telegram plans multi-billion dollar ICO for chat cryptocurrency

  3. The Verge: Spotify’s latest job listings show it’s ramping up efforts to produce hardware

  4. TechCrunch: India-based music streaming service Gaana raises $115M led by Tencent

  5. Rapid TV News: India's OTT revenues to reach US$2BN in 2022

  6. Digital TV Europe: Disney creates new global division ahead of streaming service launch

  7. Engadget: Google just made paying for the news dead-simple

  8. Business Cloud: Badoo acquires dating app Huggle and all-female team

  9. Mumbrella: Paywalls and prayers are not enough to change the minds of customers

  10. TechCrunch: ESPN launches its streaming service ESPN+

  11. Business Today: Orkut founder launches 'Hello' social networking app

  12. Billboard: Apple Music Hits 50 Million Subscribers

  13. TechCrunch: Spotify tests consumer interest in a bundle with both Hulu and Scribd’s audiobooks

  14. TechCrunch: YouTube revamps its Red subscription service to offer standalone music streaming

  15. TechCrunch: Hulu passes 20 million subscribers, will finally offer offline viewing

  16. E27: Dating app Paktor is heading towards an IPO on the New York Stock Exchange

  17. TechCrunch: Tencent leads $50M investment in NewsDog, an app vying to be India’s Toutiao

  18. Musically: Africa’s music opportunity: ‘One thing you have to have is resilience’

  19. Digital TV Europe: Sony Pictures TV makes first streaming move in Western Europe

  20. IBC: How telcos are pushing into content

  21. Recode: Partnering with Netflix and Hulu hasn’t stopped pay TV providers from losing customers

  22. Fortune: Match Is the Sweetheart of Online Dating—But Can It Fend Off Facebook and Bumble?

  23. Music Industry Blog: Emerging Music Markets: Streaming’s Third Wave

  24. TechCrunch: Streaming TV consumption more than doubled since last year, report says

  25. Business Insider: Disney has some 'Netflix killer' streaming plans

  26. VentureBeat: Streaming now generates 75% of music revenue

  27. Inside Sport: Sony confirms acquisition of UEFA EURO 2020, UEFA Nations League media rights

  28. TechCrunch: China’s ByteDance leapfrogs Uber to becomes world’s most valuable startup

  29. Cleeng: What Makes the Sports Industry Lose Sleep

  30. Financial Express: Indians spend more time watching online videos than TV, reveals survey

  31. AdWeek: What Media Companies Might Be Overlooking in Their Rush to Jump on the OTT Bandwagon

  32. RouteNote: Spotify are nearing 50/50 subscribers to free listeners

  33. CNBC: India, not China, to take center stage in Netflix’s expansion plan in Asia

  34. TechCrunch: Disney’s new streaming service will be called Disney+

  35. IBC: DAZN - The Netflix of sports?

  36. Medianama: Amazon pumps Rs 2,200 Crore in Amazon India

  37. Reuters: Tencent Music presses play on $1.2 billion U.S. IPO

  38. The Drum: Amazon Prime Channels revenues jump to $1.7bn over 2018

Will strong authentication with PSD2 kill your payment conversion?

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If you’ve made efforts to keep your payments flow frictionless, you might discover a pile of sandpaper is about to land in the middle of it. Strong Customer Authentication (SCA) requirements of PSD2 directive are about to take effect in the fall of 2019. If you’re a company who deals with payments in Europe, this probably affects you, too.

PSD2 (no, it’s not the same as PTSD), i.e. the revised Payment Services Directive is the payment regulation in the European Union. All member states had to adopt it on a national level by the beginning of 2018.

Phew, that went by unnoticed, you might think. Well think again, because the cherry is still left to be added to the top. The Strong Customer Authentication regulation will come to force after an 18-month grace period in the fall of 2019.

What does SCA mean?

SCA is an authentication procedure to verify the identity of a payment service user. It has to be based on at least two elements categorized as:

  • Knowledge: something only the user knows, e.g. password or their dog’s birthday;

  • Possession: something only the user possesses, e.g. their phone;

  • Inherence: something the user is, e.g. their fingerprint.

The payments sector has seen a constant rise of technological innovation and online shopping. SCA is supposed to make payments safer for the European consumer. The process requires more different information that only the consumer could know or have. It’s basically a two-factor authentication (but in this case two is just the minimal requirement by the directive).

Who are affected by SCA?

SCA applies to all online transactions (with some exceptions listed below). The regulation affects the whole payments industry within the European Economic Area (EEA). If there is an online payment where the customer and the payment provider are both in EEA, you need SCA. Some businesses from outside of Europe might be affected as well.

On a positive note, the regulation may spark innovation that improves the online shopping experience. Online merchants will start looking for payment providers who can deliver SCA-compliant payments with the least friction possible.

Benefits of carrier billing in the post-PSD2 world

The need for SCA is not universal and there are some exemptions to allow “frictionless flows” based on the size of the transaction. Smaller card payments up to €30 will go unchallenged, but every 5th payment will still need SCA (just in time to forget your password for example). It’s also needed if the total amount of payments during 24 hours is higher than €100. For transactions above that it depends on the fraud rates of the acquiring bank and the issuer - not the merchant.

With direct carrier billing, all transactions below €50 (and total monthly limit of €300) don’t require SCA. Carriers may process payments of digital goods, voice based services, e-tickets and certain charitable services. They’re not allowed to process physical goods without a license.

Currently carrier billing is most used for small scale payments, microtransactions and subscription payments anyway. Even in the highest ARPU countries, the highest prices that merhcants charge consumers rarely reach even half of the €50 limit. Not to mention average payments are just a fraction of this.

It’s good news for anyone already using carrier billing for their digital goods. Carrier billing is known for its simplicity, security and accessibility and not much will change with the implementation of SCA. Other payment methods might see a setback in their revenues after SCA due to higher friction.

If you’re concerned about the impact of SCA on your conversion and want to minimize the impact, consider adding carrier billing as an alternative payment method. To do that, get in touch and we’ll get you started.

Annual news recap 3/5: mobile commerce

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Year 2018 in mobile commerce was mostly about transportation - bike-sharing, e-scooters and other forms of ride hailing. If it has wheels - no matter if two, three or four - someone somewhere probably has an app for that. We saw world’s largest ecommerce deals, rivalry and dominance, battles and cooperation. Refresh your memory with our selection of the biggest mobile commerce news from 2018.

Which events to attend in 2019?

Which events to attend in 2019?

Don't want to miss out on all the other great conferences, expos and trade shows of 2019? Here’s our list of events for the year. If you plan on going, make sure to wear comfortable shoes and bring a refillable water bottle.

January

February

March

April

May

June

July

August

September

October

November

December

Did we miss anything big? Let us know in the comments!

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