- PROJECT HELP
By John BaRoss, founder and president, Fincclude Inc
A rather quiet alternative payment solution is continuing its inexorable ascension in depth and now breadth as a major, impactful payment solution globally.
Direct carrier billing, also referred to as direct operator billing, had its beginnings back near the dawn of monetizing the internet. Visionaries of e-commerce saw the potential for transacting online, plus anticipated new forms of digital products, but at price points far below viable economic model thresholds of traditional payments options like credit cards.
The notion of micropayments caused e-commerce planners to intuitively look to telcos/carriers to overcome this challenge. While carriers are communication network companies, their other significant core competency was billing. Specifically, carriers supported line item billing of network call events that often represented charges to customers in amounts comparable to microbilling (less than $5, even less than $1).
In the U.S., while credit card penetration was significant, industry studies showed sizable portions of the population (20-to-40-plus percent) on the sidelines of e-commerce due to either being unbanked or fearing to transact online with one’s personal financial account information. Leadership at major merchants viewed direct carrier billing as the Holy Grail of e-commerce billing but in the U.S., carrier leadership was under significant financial pressure due to chasing the fraudulent MCI/Worldcom ghost, and cramming and slamming billing complaints to the FTC, FCC then to carrier C-suites (for unauthorized switching of long distance carrier). These environmental factors influenced thinking at leadership of U.S. carriers to not aggressively pursue direct carrier billing.
Over time, while the U.S. became generally viewed as a global laggard with direct carrier billing, globally hundreds of carriers, thousands of merchants and countless millions of consumers scaled utilizing direct carrier billing to make purchases at a potpourri of premium digital content goods and services. In 2016, direct carrier billing has expanded its global reach and is available to consumers in about 120 countries (representing over 90 percent of the world’s population) and is supported by multiple carriers in each country. Leading industry analyst firms approximate the direct carrier billing globally supports $12-to-$16 billion in sales annually and is projected to grow to over to $24 billion by 2019.
What are some of the reasons for direct carrier billing’s acceptance and success worldwide?
Fundamentally, there has been a logical progression of direct carrier billing derived in large part to a complex array of environmental factors per nation spanning regulatory climate, penetration rates of traditional payment methods, taxes, priorities of carrier leadership, carrier margins, etc. Generally speaking, direct carrier billing's initial progression evolved from microtransactions thresholds, upmarket to higher price points as online merchants scaled the array of premium digital goods. First-movers continued to pioneer with direct carrier billing and expanded into other forms of non-digital services.
Direct carrier billing has continued to meet or exceed key measures (incremental revenues, risk management, etc.). Specifically, Docomo Digital shared that in both Japan and Europe, the superior conversion rate of direct carrier billing and the possibility of it addressing new customers (even in countries with strong credit card penetration), continues to be realized by merchants. Further, some carriers began to discover that they can realize a goodwill windfall from helping to bring financially excluded populations into the digital economy via direct carrier billing, as well as other “carrier commerce” offerings such as mobile money and much more.
In recent years, pioneering carriers and their partners have continued to successfully advance how direct carrier billing helps merchants and consumers by demonstrating its effectiveness as a billing option for “soft physical goods such as ticketing for transit and entertainment events. The benchmarks for incremental revenues, larger addressable markets, higher conversion rates, as well as stickier customers and goodwill windfalls again were achieved.
A majority of fintech payments industry coverage focuses on marquee companies (Apple, Google, Samsung) as they strive to advance mobile proximity payments. While specifics are proprietary, one important indication of marketplace feedback comes from Vodafone, which has the flagship carrier operated mobile money service M-Pesa. In contrast to the attention garnered by proximity mobile payments, a significant majority of M-Pesa transactions are remote, reinforcing the notion that direct carrier billing’s focus dovetails with consumer/marketplace needs.
Ovum revealed during a webinar last month that direct carrier billing saw $16.6 billion in sales in 2015 and predicted that figure to climb to $25.3 billion by 2020. While $16.6 billion is clearly a large figure, it only represents some 2 percent of carriers’ total revenue of $1.02 trillion in 2015. That said, there is growing appreciation in increasing the numbers of carrier c-suites that mobile-commerce revenue is expected to reach $1.3 trillion by 2020. The incremental revenue opportunities from mobile commerce via direct carrier billing assets can be huge.