Mobile commerce

Payments: A Third Pillar of Carrier Revenue?

Over-the-top (OTT) partnerships have become a standard marketing practice for most carriers. Forty-five percent of all mobile operators now offer at least one zero-rated application to their users, and 37% have at least one OTT partnership in place, according to Allot's 2014 Mobile Trends report.

This is happening in all corners of the world ranging from the US with AT&T Inc. (NYSE: T) and sponsored data and T-Mobile US Inc. and Rhapsody to emerging markets like India where Bharti Airtel Ltd. (Mumbai: BHARTIARTL) works with WhatsApp.

By giving out some data for free, users become habituated and are willing to spend money on additional data in the future. But while carriers generate additional revenue from providing the data infrastructure powering content services, the money that is moving inside of those services is something mobile operators are missing out on.

My suggestion is for mobile operators to start providing their payment technology -- carrier billing and mobile wallets -- to these merchants as well. With emerging markets playing an increasingly important role in the digital ecosystem, most merchants are struggling to capture payments from their unbanked audience.

There are 3 billion people in the world right now who have a mobile phone but do not own a credit card -- and these are the potentially paying users merchants can't get to. A good example of this is Uber choosing to add in India and Kenya where only 2% of the population owns credit cards. For merchants like this, carriers are in a position to solve the pain of online payments.

The revenue growth from payments should not be underestimated. While only 10% of all mobile subscribers use carrier billing right now, they tend to outspend customers using only data or voice services significantly. For reference, Fortumo merchants' average revenue per paying user stands at $29 in the UK, $1.7 in India and $8.6 in Brazil. This equals or outperforms the ARPU of most carriers in these markets.

Beside the additional revenue, payments provide the added benefit of keeping customers active and loyal. The customer is most likely going to top up their account if the alternative is losing their insurance provider as Telenor Group (Nasdaq: TELN) has found in providing insurance to its subscribers in Pakistan.

As carriers are partnering with a growing amount of third-party service providers, payments are the next logical step in growing these partnerships. Right now it's the merchants that are mainly driving the implementation of carrier billing in their services. With more focus also from carriers, payments have the potential to become a significant pillar of carrier revenue beside voice and data services.

— Tim Carter, Chief Revenue Officer, Fortumo

MordyK 6/25/2015 | 2:53:10 PM
Re: Carriers and value capture Beause carrier's are moving away from burner phones to identified users in prepaid, many of the issues in creating a micro-payment system are inherently resolved. ANy remaining issues are relatively minor beyond that.
Kruz 6/25/2015 | 8:57:41 AM
Re: Carriers and value capture The problem with the unbanked is that they are in countries where regulators will make it hard for Micro payments to go through, and meanwhile, for all other payments, cross border Apple Pay and other alternatives(Samsung Pay)will gain track action and will gain market share long before operators will try to unite or collaborate with OTTs.
MordyK 6/24/2015 | 2:58:34 PM
Re: Carriers and value capture Tim, Best of luck on getting carriers to play ball. But as someone who has gone down this route I know how difficult the task is.

The last time carriers worked together to successfuly create a universal service was with MMS more that 15 years ago, which is itself only an upgrade to SMS.

Carrier's complain incessantly about OTT's but they refuse to do anything siginificant to try and develop an OTT ecosystem that they play a significant role in, and when they did with the walled garden's deck it was so difficult to work with the carrier's that few developers made the effort. The development of OTT is a market response to the difficulty in working with carriers.

I'm not sure what you are refering to with "mobile money merchant payments", but if its asically competing with Visa & MC, I think its too big for the carriers for a host of reasons. Its why I highelighted micro-payments where the fees can kill and the inconveniences are great.

Best of luck!
JohnBaRoss 6/24/2015 | 2:54:48 PM
Carrier Commerce and Financial Inclusion Insightful article Tim and good discussion with MordyK.  You both convey a vision and wisdom of the promise of fully harnessing Carrier Commerce ... not just for the incremental revenue opportunity for Carriers, supplier-partners and participating merchants ... but for the oft underappreciated role Carrier Commerce serves in advancing Financial Inclusion in both developing and developed nations.

As Tim explained, there are billions of people who are unbanked, yet in the aggregate, Carriers now have over 7B total accounts - dwarfing the reach of credit cards and bank accounts combined.  Literally billions of people are on the sidelines of the digital economy yet Carriers have the reach/the distribution/the trusted billing relationships that can be harnessed to help advance the progress of financial inclusion.

Fortumo is one of about 2 dozen companies (including Danal, Boku, Bango, Dimoco and others) doing a wonderful job of growing the global footprint of Direct Carrier Billing [DCB] - now operating in over 110 countries globally with 1-10+ MNOs per country. DCB is the quiet giant of mobile commerce, already a ~$12B sector of Carrier Commerce in the payment industry (projected to grow to $18-$22B+ in the coming years).  

As you both mention, the Carrier Mobile Money [CMM] sector of Carrier Commerce has versions of solutions for P2P transfers and purchasing with participating merchants. Mobile money has been heralded in industry circles as the most impressive innovation in the payments industry today led by flagship M-Pesa/Vodafone/Safaricom in Kenya, as well as MTN, AirTel, Orange and others. Millions of lives have already been positively impacted by CMM in developing nations in Africa, Asia, Latin America and Eastern Europe ... with over 60 countries having 1-5+ MNOs per country offering a form of CMM. 

Together, DCB and/or CMM are available in over 70% of the world's nations.  While the Carrier Mobile Wallet [CMW] sector of Carrier Commerce has had challenges with Isis/Softcard and Weve failing this year, this week's news of the latest Carrier Mobile Wallet JV: 'Suretap' in Canada shows that Carrier Commerce still may find a way to meaningfully serve the CMW sector as well. 

Keep an eye on Mobile Payments Today later this week.    

ChiefRev78348 6/24/2015 | 6:00:13 AM
Re: Carriers and value capture Hi MordyK,

Carriers are both a unitary body of like businesses (from the outside) and fierce territorial competitors fighting for the same customers (from the inside). As you rightly point out this makes it harder to have a unified payments system and provides wonderful opportunities for creativity :-)

There are great examples of positive collaboration: the underlying technical specifications of radio networks for one, roaming charging (the system, if perhaps not the principle ... ), SMS, emergency communications etc. etc. 

So it can happen and I believe it will. You highlight three of the strongest current trends: contacless point of sale payment, mobile billing payment and mobile money transfer. I would add mobile money merchant payments to that list.

The opportunity is to expand each category and link them for a seamless user and merchant experience, with a common interface and requirements, low transaction costs and trusted, reliable national and international settlement.

It will happen, I believe, because of partnerships like those between carriers and Fortumo.

Tim Carter

MordyK 6/23/2015 | 3:15:46 PM
Carriers and value capture Tim,

Carrier's are notoriously difficult to work with, and getting them to create a universal system for payments is a nearly impossible task.

In an alternate universe where carriers were flexible and willing to chase opportunities, I could envision them creating and cross-interface micro-payments network with elements of Hong Kong's octopus card for the physical world and Boku for the mobile component, along with some elements from Africa's payment market peer-2-peer and other elements.

IMO this would be killer for carriers.
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