A common question that comes up with merchants we talk to is why they should partner with Fortumo for carrier billing. From one side, there are also a multitude of payment service providers who aggregate many payment methods. On the other side, carriers also provide make their direct carrier billing API available to some merchants directly. So what is the upside and downside of each approach?
So what if you choose to work with a payment gateway, i.e. a company that provides credit card payments, direct debit support, carrier billing and gift cards as one service? The primary and obvious benefit is getting access to other payment methods beside carrier billing as well. In case of limited technical resources, this also means a faster time to market: instead of a separate integration for each payment method, the payment service provider can be integrated and launched once. Everyday processes are also simplified with this approach: there is a single point of contact for end-user support as well as reconciliation.
But there is also the other side of the coin. When launching a large number of new payment methods through a payment gateway, merchants are at risk of cannibalization between the different payment methods. The payment gateway also will take a margin from any payment, which means an overall lower revenue share compared to integrating each payment method separately. For the merchant, there is lack of transparency on who is actually the final provider of the payment method. This impacts both the stability of the connection as well as operational activities (e.g. resolving issues with carriers and end-users).
For carrier billing specifically, there is also no opportunity to use merchant-hosted payment flows as carriers review these case-by-case; technical upgrades (such as moving from PSMS to direct carrier billing when a carrier launches it) are also delayed, because for the payment gateway there is little motivation to put high priority on carrier billing (as it is just one of many payment methods offered). The last two points affect conversion and also revenue negatively.
But what about going and connecting directly to carriers, instead of using services of Fortumo or one of our competitors? The main benefit is improved commercial terms, as carrier billing providers usually take 1-5% from each transaction, which is not the case when connecting directly to a carrier. In addition, it can sometimes provide a faster time to market, in case the carrier billing provider does not have the carrier connected or it is not in their roadmap. It is also often easier to connect to carriers directly when payment processing is only needed for one specific country or for selling items that are in a legislatively complex area, such as physical goods.
At the same time, working directly with carriers is complicated, which is why companies like Fortumo exist. While the margin of the carrier billing provider will be removed, the commercial terms merchants get on their own might actually still be lower - billing providers have a large portfolio of merchants which gives them more power in negotiating terms than an individual company. On average, negotiating with and launching each new mobile operator from scratch takes about two months in advanced markets and significantly longer in emerging, complex markets. Multiply this by the amount of countries (and each market has multiple mobile operators that should be supported) that you plan to use carrier billing in and you can see why such an approach might become unfeasible.
Besides actually launching the connections, it’s also important to keep in mind that there will be different reporting, reconciliation and end-user support processes for each individual carrier. And on top of that, most carriers don’t generally have merchant-facing APIs, analytics tools or fraud management solutions in place to make the lives of merchants easier and safer.
The key thing to do before deciding which approach to take is to talk with people who already have experience with carrier billing, e.g. other merchants. At Fortumo, a large number of our customers use a mix of the three approaches: for some markets, they use a payment gateway; for others, they go through Fortumo; and in some countries, they are connected directly. This depends on the merchant’s target markets, business model and a number of other factors. Get in touch with us and we’ll help you figure out the right strategy.