The mobile operator Telstra announced last week that it would shut down recurring Premium SMS (PSMS) services due to a large amount of customer complaints. Similar incidents from the United States and other countries indicate the problem is real. But should the technology be blamed or is there something else going on?
PSMS technology is outdated due to direct carrier billing (DCB) continuing to replace it in most countries globally. Telstra itself has also been offering DCB to merchants for some time now. But the customer complaints are not a result of legacy technology usage.
In online payments, whether through carrier billing, credit cards or digital wallets there is always the threat of consumer and merchant fraud. In this sense, PSMS and DCB are in the same spot and it’s not the technology that we need to evaluate, but rather the processes built around it.
Mobile operators work directly with many merchants for carrier billing but are also connected to aggregators. These aggregators in turn connect many merchants to the operator’s subscribers. While in the first case the overview of what services are being sold to subscribers should be quite clear, in the second case things may become blurry.
An aggregator might bring in legitimate business but in parallel service high-risk merchants that are usually the source of customer complaints. At Fortumo we can confidently say the issue does not impact us - adult, gambling or donation merchants can not use Fortumo in addition to a detailed list of additional requirements that merchants need to abide by. To make sure high-risk services are not available to their subscribers, carriers should thus weed out partners whose merchant policies and portfolio is dubious or unclear.
The second step that carriers often want to take is managing all service and merchant approvals on their side. This means extremely detailed reviews of checkout flows up to the font and size of texts. This means bringing launching new merchants to a standstill and creating significant delays in growing business.
In worse cases, carriers want to add carrier-hosted pages to the checkout flow with the goal of increasing compliance. As any payment specialist knows, any additional steps in the checkout process kill conversion.
Both of these steps become redundant in case (a) there is a clear guideline of merchants that can be launched and (b) only pre-approved checkout flows (such as those Fortumo offers with our Web SDK and Android SDK) are used that meet all carrier and legal regulations.
Manual review of services and carrier-hosted checkout flows address the lowest common denominator, the fraudulent merchant. Yet a vast majority of merchants using carrier billing provide legitimate, high-value services and should not suffer due to a few rotten apples. For a carrier looking to clean up their carrier billing portfolio, the best way to start is:
- Working only with reputable aggregators who have clean merchant portfolios
- Barring high-risk segments (e.g. gambling) and billing flows (silent billing)
- Pre-approving compliant checkout flows for aggregators that can be used across their entire merchant portfolio
- Setting up a merchant auditing process that is scalable and does not increase overhead nor create delays in expanding carrier billing
For the last point of scalable auditing, we encourage carriers to check out our white paper on the topic, detailing how a well thought-out policy can accelerate carrier billing growth without increasing the risk of customer complaints.