• Merchants should stick to their existing business model

• However, payment methods and strategy need to change

• Reduce your subscription pricing and duration

• Implement grace periods to give users a chance to pay again

• Payment retry support by telcos increases revenue by 10%+

• Simple, clear audit processes help telcos keep the market clean

When it comes to payments, there’s two ways to monetize online content: subscriptions and one-time payments. Which one should you pick, and which should be recommended for carrier billing?

The answer is that it depends. When we look at the gaming industry, most casual mobile games have adopted a freemium strategy with revenue coming from in-app purchases. On the other hand, Microsoft (Xbox Game Pass) and Fortnite (Season Battle Pass) have been extremely successful with the subscription model. More recently, Google adopted the subscription model for its Stadia platform as well.

The situation is similar with non-gaming apps. In Indonesia, the ten highest grossing non-gaming apps are about equally split in their business model:

• One-off payments, 4 apps: Line, Line Webtoon, Bigo, Neobazar Webcomics

• Recurring payments, 6 apps: Smule, Google One, Tinder, Viu, Starmaker, JOOX

Merchants should pick the payment model that feel works best for their service in order to maximize user life-time value. So what has South-East Asia have to do with this? Simply put, digital content revenue models don’t work the same in the fastest growing internet market of the world as they do in France or the UK.

Firstly, traditional payment methods are not widely available as less than 10% people have access to credit cards. This requires merchants to adopt local payment methods, including carrier billing.

Secondly, consumer income is lower, meaning services priced at an acceptable level for high-income markets may not be attractive to the local audience.

Thirdly, subscription-based businesses face the challenge of converting people into paying users. This is due to a combination of lack of access to online payments, lower income and expectation of free content. Giving away too much content for free or offering unlimited free trials can lead to less than impressive results.

As carrier billing is a necessity to convert the local audience, here are a few recommendations on what to keep in mind with the payment method in South-East Asia.

Merchants: localize, localize, localize

The majority of mobile users globally are prepaid. In Indonesia, 98% of consumers use a prepaid SIM card. For the merchant, this means the majority of the user base of prepaid consumers has a limited amount of money available on their SIM card to make payments. Below we have put side by side information from telcos on what the average balance of a prepaid user is, and brought out the median transaction size in the country from our Asia market report:

• India: avg. SIM card balance $0.7; avg. transaction size $0.6

• Indonesia $2.1 / $0.6

• Malaysia: $8.1 / $2.2

• Pakistan: $2 / $1.1

• Philippines: $2 / $1.3

• Thailand: $5.1 / $3.3

• Vietnam: $2.6 / $0.6

Some users will of course have a significantly higher balance on their accounts, but for the majority, a price of say $9.99/month is far too much. How to get around it?

The most effective approach for subscription businesses is to modify how they collect money from consumers. In Western markets where credit cards are used, $9.99/month is a reasonable offer. For South-East Asia, the amount collected needs to be smaller. This means the duration of the subscription needs to be shorter as well. Merchants including Netflix and Spotify have adopted this approach.

The second approach to consider is implementing grace periods. This means that when a consumer’s recurring payment fails, they are not immediately churned out. Instead, they are notified of the incident (either via e-mail or SMS) and asked to ensure they have the money on their account. After a certain time period, the charge is attempted again. Involuntary churn can be reduced this way for prepaid SIM card users who may have simply forgotten to top up their account.

Telcos: develop new features and review your merchants

What about telcos and their ability to help digital merchants increase subscription revenue?

The goal of telcos should be to modernize their carrier billing infrastructure and support features that are on the same level with credit card solutions. A key feature that our Hosted DCB product also supports are payment retries. The grace period solution mentioned earlier for merchants only works if failed recurring charges can be attempted again in the future. How effective is it? We looked at the numbers recently for telcos who have implemented it: retries lead to 12% growth in revenue.

Telcos also have the responsibility of keeping the market clean. Subscription payments are an attractive target for fraudsters, especially if the consumer is not informed of the charges happening, or it is difficult for them to unsubscribe from a service. In the US and Australia telcos have been fined for lax oversight. To avoid this, our recommendation is to put in place simple, but clear audit processes which ensures only legitimate merchants can launch subscription payments.

Summary

There is no one-size-fits-all business model for selling digital content. But the booming mobile population in South-East Asia gives telcos and merchants an opportunity to grow their user base and revenue. However, to make subscriptions a success in the region, both sides need to take extra steps to optimize their platforms.

If you’re interested in learning how Fortumo can help you process both one-time payments and subscriptions with help from our Subscription Engine (which takes care of user management, renewals and notifications), contact us.

• Modify pricing based on payment success rates
• Account for currency fluctuations in pricing
• Incentivize heavy users and block friendly fraud
• Target users by their SIM card type

Improving payment conversion is one of the most significant ways how companies can increase their revenue without investing additional resources into user acquisition and marketing. Simply put, growing your payment conversion rate from 4 to 5% means 25% more paying users and revenue.

We have previously written about traditional ways of increasing user conversion: optimizing checkout flows to remove noise and unnecessary steps, localizing pricing to match consumer income, timing promotions to days and weeks when users are most likely to engage, and offering alternative payment methods to reach the underbanked.

Here are 4 more data-based tactics you can use to increase your revenue.

Pricing localization based on payment success rates

If we leave aside technical errors, carrier billing has two primary reasons for payment failures: insufficient account balance (prepaid SIMs, no money on the SIM card to complete the transaction) and spend limits (postpaid SIMs, daily, weekly or monthly payment limit reached).

Local legislation may also require telcos to set the upper amount that a consumer can spend through carrier billing. For example, in Europe PSD2 allows telcos to process transactions up to €50 if they do not have a financial license. This can also cause high-value transactions to fail.

Looking at payment success rates gives an indication on whether your pricing is suitable. Price points that are above the average account balance of prepaid SIM users will cause a number of payments to fail, and they can also bump the postpaid SIM users over their spend limit. A sample success rate might look something like this:

• $1.9 - 91.9% success rate

• $4.49 - 84.2% success rate

• $10.99 - 45.9% success rate

Combining the success rate data with the total amount of transactions helps evaluate whether it makes sense to close the price point and direct users towards smaller purchases. Conversely, if higher price points have lower success rates and transaction volume but bring in more total revenue, the pricing can be pushed higher.

Pricing localization based on currency exchange rates

Selling services or goods internationally means the currency exchange rate impacts how much money you are making with each transaction. Let’s say you are are selling something to consumers in India at a price of 99 INR. On the date of writing this post, the dollar value of that transaction was $1.42. On October 10th last year, it would have been $1.33. On June 6th last year, $1.47. Without changing anything on your end, the money you receive for each transaction has fluctuated by 10% over the year.

We don’t advocate changing prices when the exchange rates fluctuate by a few percentage points but it’s worth keeping an eye on longer term trends. If there are substantial changes taking place with currencies (as has happened with the Russian ruble) pricing can be modified to account for the shift in purchasing power.

Encouraging positive and discouraging negative behavior

Not all customers are created equal. For mobile games, 80 to 90% of the revenue is generated by only 10 to 20% of the users. Filter out heavy users and create targeted upselling offers to them, in order to incentivize them to continue making payments in the future.

On the reverse, negative payment behavior should be discouraged. Negative in this context means friendly fraud. It happens when a user knowingly makes a purchase, later disputes it and demands their money back. Our own internal practice is that when users request a refund from Fortumo, we block such users from making future purchases. We recommend merchants dealing with their own refunds to adopt the same approach.

Why? The risk that they will attempt friendly fraud again is higher than average. Not only do refunds usually involve a substantial fee (getting the money somehow back to the user), but encouraging users to sign up for a paid service and later reverse the decision can become a headache, especially for subscription businesses.

Targeting users based on their SIM card type

With carrier billing, postpaid users tend to have a higher ARPU than prepaid users. They are not limited in spending by their account balance and generally people with a fixed telco contract have more disposable income. On the other hand, the prepaid SIM card user base is much bigger in almost every country, compensating for the lower ARPU.

Today, telcos usually do not pass on the SIM card type data during transactions. However, when transactions fail, it’s possible to identify what type of SIM card was used. This can be used by merchants for two purposes:

• Postpaid accounts: focused marketing and incentivization to make more payments

• Prepaid accounts: guiding users towards more suitable (lower) price points

Summary

Out of these 4 recommendations, only the last one is applicable exclusively for carrier billing, while the other principles can be adopted even if you are using only bank payments or digital wallets. In case of carrier billing, merchants using Fortumo can easily pull the data on payment success rates, refunds and user type (prepaid or postpaid) from our Reporting API. Want to discuss how to better use the data Fortumo provides you? Get in touch.

• GDPR requires clear specific consent and active opt-in for using clients’ data.

• Carrier billing is the safest payment method in those terms, as it requires the least amount of data for processing payments.

• Merchants and consumers still need to be careful on where their data ends up.

• Fortumo only uses clients’ data to make payments. The data is always processed to the minimum extent necessary.

A year has passed from implementing GDPR and the upheaval that followed. 2018 was the year of regulations for the digital ecosystem. Both PSD2 and GDPR became active in the European Union. Other countries and regions of the world are following the lead to implement similar rules.

On the first day GDPR was enforced, digital giants like Google and Facebook were hit with lawsuits with claims piling up to billions of dollars. Of course Facebook has been accused of invading their users’ privacy non-stop for over a year now. For example Facebook misused the phone numbers people have provided for two-factor authentication. Basically if the user tried to enhance their security, they weakened their privacy, which is basically a lose lose situation for any user.

But user privacy was a rising concern even before GDPR. The United States people are more afraid of online identity theft than being robbed on the street. Big data breaches have resulted in huge lawsuit settlements for digital merchants. In the most sensitive cases, it can ruin or even end lives.

Most notable example of this comes from the dating segment, the Ashley Madison data breach: it is a site for enabling extramarital affairs. When it’s user data was hacked and leaked, it resulted in thousands of marriages and relationships breaking up, also at least few suicides have been linked to the incident.

The purpose of the GDPR is to make it easier for EU citizens to understand how their data is being used. GDPR requires clear particularized consent and justification for any personal data collected from users.

Specific consent requires a positive opt-in. To be valid, consent must be freely given, specific and informed, and involve some form of unambiguous positive action. The consumer should be asked to actively tick opt-in boxes to confirm using their data in a certain way.

For example this has made the practice of selling or using marketing lists a sketchy business - they can only be used if all the people on the list specifically consented to receive marketing messages.

Carrier billing and user privacy

For merchants using carrier billing, GDPR was actually a positive change as carrier billing is the payment method which requires the least amount of consumer data for processing transactions, while providing simplicity for consumers.

With a card-based transaction, the payment is always linked to the consumer’s real identity. With carrier billing users can choose to remain anonymous. In case of prepaid SIM cards, even the mobile operator does not know the identity of the user.

In light of this, carrier billing can be presented as a payment option to users who are afraid that their identity may be exposed online. Carrier billing is significantly more secure from the consumer perspective, because no personal data is transmitted or stored during the checkout process.

While carrier billing collects much less data, merchants and consumers still need to be aware of their rights. Merchants should do a thorough review of their partners so that the data doesn't end up in the wrong hands.

The gaming market has reached a tipping point with more than half of the total revenue coming from mobile games in 2018. Mobile gaming also continues to be the largest segment maintaining a decade of double-digit growth - this is quite an accomplishment for a whole industry.

With the audience shifted to mobile platforms, game developers should also overlook their payment strategy and what changes need to be made in monetization on mobile platforms. Here are the main trends in the digital ecosystem that explain why direct carrier billing is growing to be more critical than ever for developers.

Trend #1: The majority of new potential gamers are located in mobile-first emerging markets

Smartphone ownership is growing the fastest in emerging markets. While internet adoption is slowing down in Western markets, it is accelerating in growing economies like Malaysia and Indonesia.

How does it impact developers' ability to generate revenue?

Lower income markets are challenging for game developers. Converting users with less disposable income means additional resources need to be invested in localization, including payment methods. Traditional payment methods (credit cards) are simply unsuitable for gamers in emerging economies:

• US & US credit card ownership: approximately 65%
• India & Indonesia credit card ownership: approximately 2%

Where does carrier billing fit in?

Unlike bank cards or mobile wallets, carrier billing is by default available to any mobile phone owner, whether they are playing on their mobile, PC or on a console. Carrier billing is already deployed by a large number of game developers and is among the most popular alternative payment methods for digital gaming (SuperData Research):

• 17% in the Asia Pacific
• 21% in Eastern Europe
• 14% in Western Europe
• 21% in Latin America
• 15% in the Middle East & Africa

Trend #2: Mobile games have overtaken PC and console games

Mobile gaming accounts for more than half of the gaming market by now and shows no signs on slowing down, being the largest market with a decade of double digit growth.

How does it impact developers' ability to generate revenue?

Desktop game developers thus have two options if they wish to profit from mobile platforms: either create a completely new game for mobile or port their existing game. Fortunately, modern smartphones are becoming powerful enough to support lighter versions of traditional PC games as well which means both options are viable.

Where does carrier billing fit in?

As digital content is more and more consumed on the mobile devices, the payment solutions have to keep up with the users’ needs. Credit card checkout flows are inconvenient on mobile devices, negatively impacting conversion rates. With carrier billing, the user only needs to provide their phone number.

Trend #3: More casual spending in gaming

The Game Profitability Index reveals a major shift in the core business model in F2P games. There’s a trend towards a more balanced monetization model as the number of casual gamers is going up. As the game developers can’t rely only on a small number of “whales” for revenue, it’s even more important to make in-app payments and impulse spending as simple as possible.

Below, you can see typical price and revenue distribution for one of our game developers: as you can see, most transactions happen at lower price points:

How does it impact developers' ability to generate revenue?

The trend is positive news for developers but only if they are quick to harness its potential and offer convenient solutions to the casual players. 83% of U.S. PC gamers pick a payment method because of the ease of use.

Where does carrier billing fit in?

Carrier billing is a natural fit for mobile content because transactions can be initiated and completed on the mobile device without any payment cards or entry of additional details. It’s also universally accessible to people in emerging markets and its simplicity and convenience also makes it a popular in Western countries. It’s fast, safe and enables user to pay with just a few clicks.

Trend #4: Stricter regulations for card-based payments

The European Banking Authority started requiring stronger authentication process for card-based payments. The technical standards on strong customer authentication and common and secure communication under the PSD2 were implemented in September 2018.

How does it impact developers' ability to generate revenue?

Due to strong authentication requirements that PSD2 imposes on developers, conversion rates are negatively impacted because the checkout flow with credit cards becomes even longer.

Where does carrier billing fit in?

The regulations don’t apply to carrier billing. This means the simplicity of the process remain unaffected.

Want to learn more about carrier billing and its benefits for game developers? Download our recent special report on the topic below.

Our latest market report gives an overview of the mobile payments landscape in Latin America: Brazil, Mexico, Argentina, Colombia, Peru, Chile and Ecuador.

Latin America has historically been a strong region for carrier billing, thanks to fast adoption smartphones coupled with low access to traditional payment methods such as credit cards. As a result, carrier billing commands either the most popular or second most popular position amongst payment methods for digital gaming transactions in the region.

On the other hand, the region has somewhat lagged behind in deployment of modern direct carrier billing solutions by telcos, as well as the commercial terms offered to merchant. Complicated taxation further makes doing business in the region challenging. Partially due to these reasons, telcos have launched their own offerings in certain segments, such as Vivo with its Android app store in Brazil and Claro with its music streaming service across the entire region.

Despite these challenges, carrier billing should not be overlooked for Latin America by game developers and merchants selling virtual content, as 60%+ of the 640 million strong population owns a smartphone while bank-based payments remain inaccessible for many. Carrier billing solves this issue by allowing any telco customer to charge purchases to their phone bill instead.

In this report, we bring out data on Latin America is aimed at giving an overview of the local digital ecosystem as well as guidance on how to modify your payments strategy to maximize results in the region.

Download the report immediately by filling out the form below.