Potential of DCB for merchants
In its Carrier Billing Forecast 2019-24 report published before the onset of the Coronavirus pandemic, predictions made by research company Ovum suggested the carrier billing market would grow from US$49bn in transaction volumes in 2019 to US$79bn by 2024m. That would represent a compound annual growth rate (CAGR) of around 10% and is an exciting outlook, driven largely by a continued focus on app stores and particularly games and streaming entertainment content, most notably video.
The Coronavirus pandemic has provided a further accelerant. We have seen consumers all of the world increase their engagement with, and purchase of, digital goods online using carrier billing as a payment method. We have seen year-on-year transaction volumes increase by anywhere from 5% to as high as 30% in some markets in Asia and in Latin America.
More importantly, we have seen a 10% increase in the number of unique active users across all of our operating partners, and this number of new DCB users is particularly encouraging. Combined with changes in behaviour among DOCOMO Digital’s existing users, that gives us reason to be even more optimistic than might be suggested by the robust growth already forecast by Ovum.
Carriers are driving change
One of the things driving this change is the carriers themselves. As they see their turnover from core business and traditional voice and messaging decline, carriers are looking for new sources of revenue – enterprise Internet of Things (IoT) provision and business to business (B2B) content. DOCOMO Digital has just enabled payment methods for a drone service provider targeting businesses in Japan, for example.
But we see most of the carrier energy going into the consumer space and looking at ways to drive over the top (OTT) services through the creation of new ecosystems – including fintech and digital payments (of which carrier billing is a crucial component) – to help them grow their non-core business. Fundamentally what we are seeing is a source of new recurring revenue as carriers build platforms that bring together OTT merchants. In some cases, that means bringing on-board their legacy value-added services businesses. However, most of the example we see involve carriers working with new OTT merchants, bringing them together in a way that makes them more accessible to consumers while providing them which choice in one easy location.
That is driving higher engagement, average revenue per user (ARPU) and share of wallet. Together all of those factors drive higher customer lifetime values for the carriers and the participating merchants. By 2024 we expect carrier billing to overtake SMS in size as a contributor to total mobile service revenue, so the stakes are growing. As the carriers build these ecosystems, they are driving crucial services growth, and carrier billing is a key enabler of that.
Japan and Korea illustrate growth potential
Japan and Korea have been a source of so much innovation in the telecommunications industry over the last twenty years and are a great place to start looking for best practice examples on how to build these ecosystems. The regulatory environments in these countries enable not just the purchase of digital online goods with carrier billing, but also physical goods, transportation and tickets.
The operators in those markets have had an opportunity to see and operate in the future, and we should be looking to them for best practice in how they have gone about acquiring their partners, merchants and physical points of presence. There are champions, early movers and front runners across the world, however – in Europe (Telefónica, Telenor), Latin America (America Móvil) and South East Asia (Singtel) for example.
Turkcell responded to changes in the regulatory environment in its market by creating Paycell. And I can say from DOCOMO Digital’s years of working with it that Telefónica is unusual amongst carriers in how active it is in sourcing and bringing the OTT merchants it wants onto its networks, whilst also having a very sophisticated way of doing that.
Japan is a key market for carrier billing, where it is perhaps one of the dominant forms of payment for the purchase of online goods. It is a US$20bn a year transaction volume business, and DOCOMO Digital’s shareholder NTT DOCOMO is the largest player in that market. The telco has been in that market for around 20 years having started around the time of the mobile internet service i-Mode. And some of the lessons we have been able to learn from its experience is that when it hit a plateau, they continued to reinvest in marketing and making sure that they kept a large active subscriber base.
In fact when we look across the world, certainly at DOCOMO Digital’s portfolio of operating partners, they [carriers in Japan and Korea] have the highest percentage of their customer base as active users and they continue to invest in that. You can see that as they have built out their carrier billing and their own ecosystems, they have stimulated growth by merging successful loyalty programmes with their wallets. They also introduced QR codes that allow their customers to use carrier billing for the purchase of physical goods in retail stores.
DOCOMO Digital is part of the Fortune 100 company NTT Group, while NTT DOCOMO is one of the few carriers remaining in the world that has dedicated research and development teams looking into ways to innovate and bring new services to market. So DOCOMO Digital can leverage on that innovation and best practice in NTT DOCOMO’s global leadership in carrier billing to bring some of those learnings to our customers.
Some of the use cases NTT DOCOMO is looking at involve fintech and the advent of fifth-generation (5G) mobile networks which are expected to enable a range of new services. In the insurance space, for example, DOCOMO Digital might consider providing insurance for a high-risk sporting activity such as skiing or mountain biking. Using location-based services and a real-time ability to quickly underwrite these kinds of risks using algorithms could deliver insurance for specific use while the buyer is on a black ski run or a particularly difficult biking trail and also to keep track of the consumer in case somebody needs to come and rescue them.
You can start to see some of the use cases that can be enabled using those technologies and how carrier billing can provide a convenient payment mechanism. NTT DOCOMO is one of the largest, if not the largest, carrier billing MNO business in the world, which is exceedingly complex given the wide range of merchants it serves. DOCOMO Digital is in a perfect position to share the skills, platforms and processes that bring simplicity to potentially complex environments, and trusted fund flows to merchants and their customers – this is one of the things we have excelled at. We look forward to sharing our expertise with merchants and partners globally.
Industry needs to work together to address the challenges
Raising awareness of carrier billing is still a work in progress. I am regularly surprised by the number of global merchants who are not yet aware of the benefits of carrier billing, plenty still to be done there. As we look at increased interest in subscriptions and bundling, especially streaming video and music content providers, there are ample opportunities for co-marketing. As I mentioned earlier, the highest performing operator and merchant partnerships we see are the ones in which we see both sides are investing in making customers aware of carrier billing as an option. Those customers yield great returns relative to other payment methods: much higher completion rates, great engagement, multiple purchases repeat transactions.
More work needs to be done as an industry upfront on fraud prevention and bad debt management. There are standardisation conversations that we need to have with traditional inline cable TV operators which are now starting to compete with OTT merchants as a result of cord-cutting, especially amongst their younger customers. As those providers try to bring OTT services into their portfolios, there is a great opportunity for carrier billing. We see this in a few instances around the world, but when we think about set-top boxes, the complexity in that space suggests there is a real opportunity as in industry to drive standardisation to accelerate penetration.
And finally and perhaps most importantly, we need to work together to make sure that access to the physical goods, ticketing and transport markets are available globally for carrier billing as a payment method. I mentioned Japan and Korea; there is China, Turkey, one or two other markets where this is already possible.
But in the European Union (EU) and many other markets in the world, there are either strict prohibitions or a sufficient lack of clarity that the industry players are not yet in this space. So this is an opportunity for carriers, merchants and payment service providers (PSPs) like DOCOMO Digital to come together to work with forums, like the mobile ecosystem form (MEF) or the GSMA to drive a sustained policy of engagement with regulators and other key stakeholders to open up carrier billing as a payment method for physical goods, ticketing and transport. This is a really substantial opportunity and is one worthy of our effort over the days, weeks and months ahead.