Note: This is a guest post by Carter Rogers, Insights Team Manager at SuperData Research. SuperData Research is the world’s leading provider of market intelligence. Through proprietary data partnerships SuperData collects point-of-sale and event data from publishers, developers, and payment service providers. This allows it to base analyses on the monthly spending of over 160 million unique, paying digital gamers, worldwide.

The concept of watching others play video games is no longer confined to the periphery of quirky internet behavior. Amazon put game livestreaming on the map when it acquired game livestreaming site Twitch for $970M in 2014. Gaming video content (GVC), which refers to online videos and live streams related to all things gaming, has only grown from there.

In March 2018, streamer Tyler “Ninja” Blevins and rapper Drake made headlines when they exceeded 600K concurrent viewers on Twitch while playing Fortnite: Battle Royale. While the market for GVC continues to grow (up 9% from last year), platforms, broadcasters, and related businesses cannot rest on their laurels and assume the growth of the games industry itself will continue to propel GVC forward. Instead, platforms and content creators need to improve their monetization of a growing audience that is spending a significant number of their leisure hours watching other people play.

GVC already has a massive footprint. This year, it is on track to earn $4.6B in revenue while attracting 843M viewers. Ads and sponsorships are set to make up roughly two thirds of GVC revenue this year while consumer spending on subscriptions and donations to content creators makes up the rest. What’s impressive is that GVC viewers will pay well over $1.0B to content creators this year not because they have to, but because they want to. Voluntary spending may have benefits like an on-air shoutout or access to special chat “emotes” but the core content is generally available for free.

Viewer donations to creators are the lifeblood of the GVC industry and companies that facilitate these payments stand to benefit. Donations and subscriptions are a viable monetization model for a huge variety of content because streamers can “microtarget” an audience that pays them directly instead of relying solely on ad revenue. They also don’t need to attract a gargantuan audience to make a decent living since their income will come from individual donors. What’s more, viewers are likely to show their appreciation for content that seems to be tailored specifically for them. Globally, 58% of livestream viewers (among those who are also game consumers) regularly donate or pay for subscriptions to content creators.

Viewers in mature markets like North America and Western Europe don’t mind spending a part of their disposable income to support their favorite live streamers, unlike those in emerging markets. That doesn’t mean it’s going to stay this way: From 2017 to 2020, GVC viewership numbers will grow by 16% in North America and 17% in Europe. In contrast, viewership in Asia and Latin America will grow by 23% and 26%, respectively, during the same period. It’s not hard to imagine a shift in consumer behavior once these markets have their own local GVC celebrities.

As GVC expands into new markets, video platforms and third party donation portals will need to look beyond incumbent payment methods like traditional eWallets and credit cards. Limited payment infrastructure already stunts the growth of digital games in many emerging markets. For example, in South Africa, 28% of game consumers regularly are unable to pay with their preferred payment method. In contrast, only 7% of consumers in the US face this issue.

The next wave of superstar streamers from emerging markets will favor the video platforms and donation platforms that make it easy for their fans to contribute small amounts to show their appreciation. Businesses that make payments as accessible as possible will be poised to reap rewards as GVC expands.

During the last months stories about taxation arguments between the EU and US have been hitting the headlines. While tariffs on steel and aluminium are unlikely to impact merchants selling digital content, it is nevertheless a good time to cover the topic from an angle relevant to digital service providers operating in international environments.

Most digital service providers start out with a simple approach to payments. Either they choose a credit card processing company to work with or the payments and distribution are delegated to a platform (apps hosted on the App Store or Google Play).

This approach is the simplest, as everything related to taxation is managed by the partner who acts as the Merchant of Record. As companies grow, they have more resources to expand their payment capabilities and optimize things on their own which means that usually the payment processing company becomes an Agent (technical provider) and the Merchant of Record is the digital provider themselves.

If you’re a company going through that transition, here’s what you should keep in mind:

• Always do your own research: Taxation is different in each country and depends also on the country that you are located in (e.g. some countries have tax treaties), as well as the payment methods used and content sold; when entering a new market it makes sense to review what to expect with a tax consultant or contact the local authorities; PwC’s overview also provides a good starting point
• Different countries, different taxes: Beside the standard value-added tax (VAT) that applies in almost all countries (at different rates), service providers also need to keep an eye out on business, sales, digital and telecommunication, excise and withholding taxes. While most taxes impact the service provider, some countries can also have consumption taxes in place which impact the price of the service (and how it should be displayed) to the consumer. Service providers selling content in Europe can simplify their lives through a Merchant One-Stop Shop
• Digital content taxation is on the rise: As global companies without local presence dominate the digital entertainment industry, a growing amount of governments are looking to tax the industry, including Russia, India, Argentina, Brazil and Italy
• Local entities simplify taxation: Opening up a local subsidiary involves paperwork and takes time. However, if you have a strong geographic focus on one region, certain countries are suitable for creating a “hub” in the area, creating more favourable tax conditions and also increase the likelihood of companies in the region being able to do business with you. Such countries include Singapore for South-East Asia the United Arab Emirates for the MENA region.

In any case, carrier billing supports both models, whether you want to delegate taxation to partners like Fortumo or handle them on your own. If you are interested in expanding your payments reach through the most widely available alternative payment method globally, get in touch.

Next week, we are headed to ConnecTechAsia, one of the leading technology events in the region. If you want to set up a meeting during the event, get in touch.

Our CEO & Co-Founder Martin Koppel will also be moderating a panel discussion during the event. How can telcos become the digital convergence point and how can partnerships with digital companies be improved?

We’ll be seeking the answer to that question on Tuesday, June 27th at 2.20PM with HOOQ, Hutchison 3, Huawei, Epsilon Telecommunications and PCCW.

See you in Singapore!

Our carrier billing deployment tracker provides a quarterly overview of carrier billing launches by the biggest digital media companies across the world. Where have Facebook, Apple, Google, Spotify, Netflix, Riot Games and Amazon been active recently?

Below is the full overview, see if you can spot the two new launches. Click on the image for a bigger version:

Fortumo recently had the pleasure of presenting at MRC Dublin, Europe’s leading event for payment professionals. We are now glad to share with you the content of that presentation, given together with our good partners over at Badoo.

The audience of digital service providers is bigger than ever before. Smartphone ownership globally exceeds 2.5 billion users. But getting these users to make online payments has become more challenging, because proportionally less people have access to traditional online payments.

In the UK, 74% of people own a smartphone while 61% have a credit card. In India, there are 12x less credit card owners than smartphone users (340M). In Russia, the difference is three-fold and in Brazil two-fold. Unlike the UK, emerging economies are seeing rapid digital user base growth but the majority of new users are unable to pay for digital content.

The situation is further complicated by other factors impacting the digital ecosystem in these countries:

• Lower income which effects both eligibility for bank accounts and the amount of disposable income available
• Shift towards mobile-only consumption which makes some existing marketing and acquisition channels redundant
• Lack of access to cheap and fast mobile data which creates a contradiction for how service providers intend their service to be used and actual consumption patterns
• Significant digital content piracy which has created an expectation in consumers that online content should be free

How then to monetize the growing proportion of 2.5 billion smartphone users who not only lack payment access but are also less prone to spend and engage with online content differently from consumers in Western markets?

One way is through alternative payments, more specifically carrier billing. By today, all of the world’s leading digital companies - Apple, Google, Amazon, Spotify, Netflix and Facebook - have begun to resolve the payments challenge by adopting carrier billing and other localized payment methods.

But many other digital service providers remain skeptical about carrier billing, which is caused by myths related to its past:

• Commercials are low. When talking about digital content, the standard payouts in most countries to merchants today are above 70%. In case of physical services and goods where volumes are huge, telcos are willing to discuss commercial terms equal to credit cards
• Technology is outdated. In the past, Premium SMS (PSMS) was the primary technical solution for charging with carrier billing. Today, there is essentially no difference between the technology used by card providers and the server-to-server, token-based charging that direct carrier billing (DCB) supports
• The user experience is not great. Related to the previous, consumers needed to go through several steps to complete Premium SMS payments. Today, 2-step charging allows service providers to authenticate users once and charge them again without repeated authorizations in the future

Another important aspect to consider is customer data. While GDPR focuses on the EU market, companies are being pushed towards adopting it as a global standard. In this context, collecting the information that is necessary for processing card-based payments can become a headache.

With carrier billing, the issue is mitigated as only the user’s phone number is needed to process transactions. Direct carrier billing has also moved towards tokenization in many markets, which means service providers do not even have to worry about processing, storing or potential leaks of customer information.

Working together with telcos also gives additional opportunities for user acquisition and engagement. As telcos have marketing channels in place through which to reach consumers, partnership with them means the opportunity to run co-marketing campaigns.

We at Fortumo are of course slightly skewed towards the payment method that we provide, so it’s also important to understand that carrier billing is not the only option. In digital gaming, here is how the payment mix breaks down globally:

Our co-presenter Badoo recommended merchants not to stick with just the current payment solution (which for most today means credit cards) and not to assume the same approach will work in each country. As an example, they showcased two countries with extremely different user spending behaviour (click for bigger):

Here’s what they recommend when thinking about alternative payment methods:

• Is my current payment solution in the country I’m analysing good enough?
• How do the monetisation KPIs of this country look like compared to my top markets?
• Is there a big gap?
• Is the gap because of the wrong pricing strategy or wrong payment methods?
• Ask your PSPs to provide insights on the market and check what PSPs other popular service providers from the same category merchants are using
• Consider your pricing, average transaction value and compare them with the market averages

After deciding which new payment methods to implement, Badoo recommends to test heavily and look at all performance metrics, not just payout:

• Don’t be afraid of lower payouts of some payment methods, the end result (payout + conversion + total revenue) is what matters
• A/B test adding a new payment method vs not adding it with your users, and test replacing the new payment method with your current, lowest-performing one
• If the new payment method works, create healthy competition between your PSPs and keep A/B testing for flow optimisations and payout improvements
• Don’t underestimate the importance of traffic balance between your key PSPs; it might make sense to accept slightly lower commercials with a PSP in a specific country or with a specific payment method to get the most out of your partnership in other countries

One topic we at Fortumo often debate with merchants is the risk of cannibalization from adding new payment methods - existing users switching to another method, rather than new users starting to make payments. Data shared by Badoo indicates this concern is often overrated. In countries with low card penetration (countries A and B), alternative payments substantially boost revenue while in mature markets (country C), the effect of cannibalization is minimal, especially with smart segmentation of users (click for bigger):

Want to explore carrier billing as an additional path to revenue? Get in touch.