2017: Steady payments growth for carriers, opportunities to accelerate it further

Special report: carrier billing for dating services

This article originally appeared on The Fast Mode.

As physicist Nils Bohr has said, prediction is very difficult, especially if it's about the future. Predictions are often impacted by mass psychosis, with biggest growth forecasts given to technologies that are perceived to be coolest at the time. The more long-term the prediction, the harder it is to avoid falling into cliches. The telecommunications industry is a giant and relatively slow moving sector that is nevertheless going through substantial change right now. My predictions for 2017 will focus on how the emergence of digital economy will continue impacting the existing business of carriers and what they will do to embrace it. I will especially focus on what will happen to carriers from a payments perspective in 2017 and how they can prepare for it. Here are my 5 predictions for the upcoming year.

Carrier revenue from app stores will continue to grow

In 2016 Apple, Google and Microsoft adopted carrier billing as a payment method for their app stores. While user acquisition and monetization challenges have been “solved” for Western markets, carrier billing is one of the keys to solving the same issues in emerging economies. The fact that smartphone adoption and income in such markets is growing the fastest means app stores have also had to involve carriers for help.

In 2017, revenue for those carriers who are already connected to the app stores will continue to organically grow. For carriers not yet connected, many will likely be plugged in during 2017. There are still notable gaps in app store payments coverage in Latin America, Europe and Asia which will likely be closed up during the year. The main driver for revenue from app stores for carriers will be their own marketing campaigns as well as app stores adapting their monetization strategies to account for emerging markets.

Carriers will start playing a more strategic role for the streaming industry

In 2016, we saw music and video streaming services pop up like mushrooms after rain. The streaming market is expected to grow significantly, especially in Asia. Yet such a large number of service providers will most likely not fit into the market and there will be consolidation during 2017. As we saw with 3rd party and carrier app stores, there simply was not enough room next to Apple, Google and Microsoft. So far most of the growth for streaming services has happened in the developed markets and the role of carriers as co-operation partners for streaming companies has not been critical. However, with the shift of focus to emerging markets, the capabilities of carriers as bundling, billing, distribution, data and marketing partners makes their role strategic in streaming service providers growth there.

While many such service providers and carriers have already established successful partnerships in emerging regions, some notable players like Netflix and Amazon have not done so and this will most likely happen next year, with carriers who are prepared to onboard them landing major partnership deals.

With video and audio consuming a lot of data, carriers on one hand will have an opportunity to earn additional revenue through these streaming services. For carriers in emerging markets, these services can be the way to get users to switch from wifi or offline usage of their smartphones to mobile data during 2017.

Carriers will have to figure out a way to combat payments fraud

Continuing into 2017, major digital merchants like Apple, Google and Spotify will increasingly adopt and drive usage of carrier billing. As carriers increasingly work with these global, high-profile companies, their billing solutions will come under scrutiny from fraudsters, much like the merchants’ card-processing capabilities are tested.

In the past, when fraud has occurred, carriers have often resorted to mirroring the bad debt to merchants without taking the time to invest into risk and fraud management solutions. With tier 1 companies such as those mentioned above, this will not be possible. In 2017, carriers will have to focus more on analysing payments data and putting in place a technical infrastructure that enables tracking and respond to illegitimate usage of their network. Carriers not realizing the threat will put themselves at the risk of damaging their reputation both with merchants and subscribers who have been targeted.

Carrier service offering becomes fragmented through segmented bundling

Bundling deals are a highly effective way for carriers to keep their subscribers loyal and for service providers to acquire new users through the carrier marketing channels. But when the bundle deals expire, both sides see the same negative impact: for merchants, users don’t subscribe to the paid service; for carriers, user motivation to stick with their network goes away and churn is likely to increase.

In 2017, these challenges can be overcome with two different approaches. First, carriers need to expand the merchant segments they create bundle deals with, as they have so far predominantly focused on music and video streaming services. New partnership segments are for example productivity software, VPN, anti-virus, e-learning, digital publishing and classifieds portals. Second, while carriers have partnered with merchants only on marketing activities in the past, the transition from free-bundle-to-paid-service can be overcome by also partnering on carrier billing.

New segments deploying carrier billing will give new growth opportunities

For 2016, we predicted fintech companies to become customers of mobile operators. During 2016, there have been first cooperation projects going on, but the widespread adoption has not yet happened. In 2017, there will be further expansion in new segments for carriers: most likely in ridesharing and insurance services for whom direct carrier billing infrastructure and commercials are most suitable. We predict markets where legislation supports carriers processing digital money and mobile operators who have taken time to invest in their technical infrastructure to be the first to announce these partnerships.