The telecoms industry professionals and analysts gathered at this week’s Global Carrier Billing Summit provided a fascinating insight into the future direction of the mobile payments market. The event kicked off with Omdia principal analyst Guillermo Escofet outlining the evolution of carrier billing over the last twelve months and the opportunities that recent developments present to telcos and mobile network operators (MNOs).
The changes to app store billing processes prompted by new regulation – including the rulings in Japan, South Korea, and the US that I mention in my recent blog – are pushing Apple, Google and other app stores to consider allowing third-party billing for all apps within their stores, said Escofet. Omdia estimates that direct carrier billing (DCB) enablement on Google Play and the Apple App Store generates the most significant revenue share in the carrier billing market. So, a drop in total transacted revenue could considerably affect the continued growth of the carrier billed digital goods market. In theory, it may be at least partially offset by new DCB opportunities opening up on the publisher side as new users may opt for other online payment options, including browser based DCB. It is only speculation at this stage, but we can be cautiously optimistic.
Escofet believes that the impact of the App Store billing changes may be overestimated, especially when it comes to games which account for over 70% of app store revenue. Mobile gamers frequently buy new games, and being diverted to another website every time they do that could add a lot of unwanted friction to the transaction process. Escofet, therefore, believes that most migration away from app store billing is more likely to happen with subscription services requiring their customers to visit a payment page only once. For mobile gamers, the convenience of the app store checkout process may ultimately be the deciding factor.
Industry insiders have mixed opinions
Aleksandra Radojevic is chief strategy officer at m:tel, a telco in Montenegro, a joint venture between two other Balkans operators – Telecom Srbija and Telekom Srpske. She believes that the changes to app store billing policies will present operators with an opportunity to renegotiate terms with their strategic partners, more so given that mobile subscriptions in the country far outnumber credit cards.
Kieran Clare, chief business development officer at Content for Mobile, agreed there may now be scope to negotiate more flexible deals which are beneficial for both parties. But he pointed out there remains “a kind of regulatory comfort blanket” around app store policies that protect the end-user. Also, the app store checkout process is very sleek, and it remains to be seen if carriers will trust other third parties to deliver something comparable, which is what they would need to compete.
Oscar Castro Cabrera, global strategic partnerships manager at Telefónica Spain, feels that whatever happens in the future, telcos should be open to billing integration outside of the app stores to protect their own revenue position and expand the carrier billing business if they can. But the major challenge, he believes, is to have the integration partnerships in place to seize the opportunity quickly if it arises.
We believe there is no doubt apps stores will continue to be pivotal in driving mobile payment revenue and solving the challenge around improving the consumer experience and customer lifecycle management. But at the same time, we agreed that the telecom industry must be as ready as it can be to ensure it supports merchants however, they want their consumers to conduct in-app purchases.
Aggregators now one-stop-shop for multiple payment options
It seems that the direction of the payment experience will change, and carrier billing has to be ready to embrace that change. The majority of DCB revenue may still come from the app stores for the moment. Still, suppose more of that turnover is driven onto the web and other acquisition channels in the future. In that case, telcos must be part of the ecosystem that supports that, too—and having partnerships in place with other stakeholders, whether app stores, payment service providers or other payment facilitators and direct relationships with merchants will be a crucial advantage.
Omdia notes that the rollout of new DCB connections by Google Play and the Apple App Store slowed down over the past 12 months to just eight. That is not due to diminishing interest in carrier billing, says Escofet, but because the rollouts have hit the long tail involving smaller carriers often with lower ARPU with lower technology capabilities resulting in more significant effort and smaller rewards.
Deployments have stalled in regions like sub-Saharan Africa and Latin America, where the economics of airtime credit, operator caution and hostile regulatory and tax regimes make it very hard if not impossible for DCB to work. Meanwhile, the app stores’ connections to local digital wallets, real-time payments and pre-paid cards are proliferating.
Interestingly, says Escofet, these connections are also being enabled in countries where DCB is already available, not those where there may be a real need for an alternative. It’s too early to say if or how far these alternative payment methods may cannibalise DCB, and perhaps mobile wallets will help bring all forms of mobile payments to greater prominence.
Over the past twelve months leading payment aggregators like DOCOMO Digital have already been focused on enhancing billing transaction volumes using digital wallets as we evolve to bring in other payment methods like wallets beyond DCB. As the mobile app industry continues to change, app stores, merchants, gaming companies, and operators demonstrate the flexibility that is likely to become even more crucial to their long-term success. And as aggregators, we have an essential role in helping drive that success.