14 NOV 2016

How to do a background check on your carrier billing provider?

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Andrea Boetti

Director of Strategic Partnerships, Fortumo

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Last week we wrote about which type of partner to choose for carrier billing: a payment gateway, carrier billing provider or direct integrations with carriers. In case of the second option, there are dozens of alternatives available. There are a small number of providers with global coverage, many more focusing on specific regions or countries. But beside coverage, what else should you keep an eye out for?

Transparency in payouts

Besides reaching as many users as possible, you obviously want to receive as much money from each transaction as possible. But when requesting a payout proposal from the provider, make sure that there are no hidden costs involved.

A common case that occurs is providers including taxes in your proposal. So while your 90% payout might look great, in reality it could have significant withholding, value-added or service tax attached to it. In case of Fortumo, payouts are in net and can be publicly viewed on Fortumo’s Dashboard.

Other hidden costs that should not be overlooked are monthly fees or fees related to processing payments (e.g. payment confirmation messages, connection fees per carrier). In order to avoid such issues, always get a written verification from the service provider that the proposal made to you displays net payouts and no additional costs are incurred when using their service.

The third, least obvious aspect of payouts is taxation management. In case the service provider transfers payouts to you from which taxes have not been paid, you become the one responsible for doing it. Figuring out the taxation logic for dozens of markets can be a significant burden on your finance team so keep that in mind.

Technical capabilities

Understanding the technology and lingo of carrier billing can be confusing if you have previously only used card-based payment solutions. When assessing carrier billing, be attentive of loaded terminology. The most common term that confusion results from is “direct carrier billing”, something which all providers claim to have and all merchants want.

Direct carrier billing is nothing exceptional, it simply means charging users over server-to-server connection instead of Premium SMS payments. And while direct carrier billing is becoming more available, it is not always the technical standard, especially in emerging markets. However, a service provider may try to instead claim that “direct carrier billing” actually means they charge the user on their phone bill or that they have a direct relationship with the carrier. Both of these are incorrect. For the first, how else would you be charging the user? And for the second, having a contract with the carrier does not mean direct carrier billing will be available, because some carriers only support Premium SMS payments.

Another claim to keep an eye out for in terms of technology is unique, unparalleled billing technologies. The term that gets thrown around the most is “0-click payments”, which simply means authenticating the user through header enrichment (MSISDN forwarding technology). Another example is the claim to be able to store the user’s phone number for later usage to bill them again. These are all default features provided by carriers. The main difference is what additional features the service provider has built into their products, whether these products are compliant with market regulations and whether they positively impact the checkout experience and conversion rates.

The third aspect we hear most often about is dynamic pricing. Merchants using to card-based payments can charge users any price they want to. But with carrier billing, things are a bit different. In case of Premium SMS payments prices are tied to specific short codes and keywords. And in case of direct carrier billing, many carriers have adopted the same fixed pricing logic. This means true dynamic pricing is available with very few carriers.

Most likely, what you are instead being pitched when asking about dynamic pricing is multiple billing. For example, if you wish to charge the user €20, they might have to make 4 payments in the sum of €5. If this is the solution you are offered, wool is being pulled over your eyes. Multiple billing is again available through any service provider, but only permitted by legislation in roughly half of the markets globally. Additionally, using multiple billing causes frustration for end-users, when they are unable to complete the full payment due to an insufficient prepaid balance or spending limits.

Operational stability

The final aspect to look out for when evaluating a service provider is their stability and reliability. After all, you trust the service provider to deal with your users and collect money on your behalf. Here you can ask three questions from the company making you a proposal:

  • How long have they been on the market?

The longer the company has existed and operated, the higher likelihood they are a reputable and reliable partner.

  • Who else are their customers?

Do they provide payments for gambling companies, adult content or allow donation-based payments? If that is the case, be cautious. Risk of money laundering and legislative changes are high in these segments, meaning your connection might be at risk as well.

  • Are they profitable?

If you never hear any information about refund or bad debts from the service provider, you are likely getting subsidized. That is, the service provider is making a loss for processing your payments. While great in the short run, would you feel comfortable keeping your money in a bank that you know might run out of it at an unknown point?

With so many service providers on the market, it’s tricky to pick the best one to work with. As with a doctor, we recommend to get a second opinion on the sales pitch you are given if you feel uncertain. The best neutral for source for this are usually other merchants in your segment using carrier billing.

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