Mobile operators, would you buy your own product?

Mobile operators, would you buy your own product?

For mobile operators digital innovation is the key to future growth. Sources of revenue in the mobile ecosystem are shifting away from traditional telecommunication services and handset sales towards digital service creation, aggregation and distribution.

Mobile operators have tried to do this on their own but this has usually not worked out. One notable example has been the widespread trend of carrier-owned app stores 4-5 years ago, most of which are now defunct.

The alternative (and less costly from an investment and headcount perspective) approach is to work with third parties who create such services. The mobile operator can then focus on its core area of expertise: distributing, monetizing and marketing the services to their subscribers.

What services should telcos partner with? We already see partnerships on virtual (gaming, social networking) and digital (app stores, streaming) segments, but is there anything beyond that?

With the majority of users likely to remain unbanked in the upcoming years, all online services that move through traditional channels in Western markets could become a part of the the telco portfolio: ridesharing, insurance, micro-financing, e-commerce.

For telcos, the benefits of such partnerships would not just be the revenue generated from the substantially bigger payment volumes for these mainstream consumer goods, but also creating more dependency from subscribers on their operator. More dependency = less churn.

But for most mobile operators, bringing in these new partners will be a challenge due to having the same view on condition requirements as with legacy segments like gaming. Payouts that are not competitive with card-based payments, longer payout cycles and lack of active fraud management will be immediate showstoppers.

For carriers it is critical to realize that in these segments, their position is not dominant and new partnerships can not be launched with conditions that may have been suitable a few years ago. Even in gaming, a traditionally strong segment for DCB, merchants have the choice of other vendors, as is witnessed in payment method market shares (below, digital gaming payments in 2016):

    Bank cards   Direct debit   Prepaid cards   eWallets   DCB   Bank transfers
Market share   25,3%   4,6%   13,9%   30,1%   14,5%   8,4%

Carrier billing still provides value to merchants that no other payment method can provide: universal reach with any mobile phone owner and the marketing resources of mobile operators. But even with these benefits, the “traditional” carrier billing offering will be unfeasible for new segments.

We know the people that we work together with on the telco side and see the desire to innovate and bring these new service providers on board. But how to convince others inside a huge corporation? How can we build a stronger offering to merchants together?

What would be helpful here is a thought exercise internally for the mobile operator, where they try to take the viewpoint of merchants. In fact, every mobile operator already is a merchant with POS in each store accepting credit cards, e-commerce stores for digital services and hardware. When comparing payment partners for these storefronts, what does the mobile operator look for? Like with other merchants, the key requirements are:

  1. Lower fees
  2. Fast access to generated revenue
  3. Low chargeback and refund rates

Comparing the carrier billing offering to other payment methods available to merchants helps mobile operators understand how to improve their own offering.

On the technical level, there is nothing stopping telcos from being on par with other payment service providers and for example providing payments to eBay. While commercial margins can present a challenge (prepaid distribution costs) these can to a certain extent be compensated through the marketing value that carriers bring, meaning merchants can be more open to lower payouts.

In the past, the service providers who wanted to use carrier billing needed to convince telcos that they brought in enough revenue to be “worthy” of launching on their network. Today, the roles are reversed because other alternative payment methods (such as digital wallets) have emerged. This means telcos need to review their offering and become much more active in selling their carrier billing products.

A more modern approach in providing payment services will mean telcos are able to grab a market share in new and substantial segments that are currently not possible (ridesharing, insurance, micro-financing, online commerce) which not only brings in additional revenue but helps make subscribers more dependent on telcos in living their digital lifestyle.