- 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 Unified SDK 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.
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.