The value of goods and services purchased using direct carrier billing (DCB) will steadily increase over the next five years, reports research company Omdia (formerly Ovum). However, electronic wallets (eWallets) are fast becoming a significant contender in the well-contested alternative payments space.
Omdia’s Global Carrier-Billing Forecast Report, 2020-25, observes renewed interest in DCB on account of the restrictions induced by the pandemic. That was partly due to greater demand for mobile apps, games and streaming media as lockdown restrictions took hold. But a broader shift to contactless payments for the purchase of physical goods also led to renewed attention to different payment mechanisms as an alternative to cash and cards.
Several high-profile digital content providers adopted DCB as a payment mechanism serving as a boost to the ecosystem. For example, sports streaming service DAZN introduced carrier billing for its subscribers in Germany and Switzerland in partnership with Telefónica Germany (02) and Swisscom in June last year.
Epic Games did the same in Spain with other countries set to follow later, allowing players of its Fortnite battle royale title to purchase downloads, battle passes and in-game content from Epic’s own games store. And elsewhere YouTube made its live streaming service YouTube TV, priced at US$49.99 a month, available to US subscribers through their mobile phone accounts with one of the country’s leading mobile network operators (MNOs). We partnered with gaming lifestyle brand Razer recently to enable direct carrier billing for Razer across multiple markets worldwide.
As Omdia points out, those companies now join others, including Google, Apple, Netflix, Amazon and Microsoft, allowing users to make purchases by adding charges to their monthly phone bills. In consequence, it estimates that total transaction revenue enabled by carrier billing reached US$52.4bn in 2020, up almost 11% from US$47bn in 2019. The market may expand at a compound annual growth rate (CAGR) of 6.8% between 2020 and 2025 to exceed US$77bn.
The Oceania, Eastern and South-Eastern Asia regions accounted for 65% of global carrier billing revenue in 2020, with 60% coming from Japan, China and South Korea alone. That share may shrink to 55% by 2025, however, as more people in the Americas and Europe increase their use of the payment method. Multiple sources will drive the expansion, but most notably mobile bundling partnerships between telcos and content providers in the Americas and accelerating OS app store purchases and cloud gaming subscriptions in Europe.
While the combined volume and value of carrier billed transactions soared in 2020, specific segments of the market plummeted – mainly revenue from commuter orientated public transport tickets, ridesharing, parking/toll fees and snacks/beverages as millions of people around the world were forced to stay at home.
eWallets expanding market share
Omdia concluded that electronic wallets (eWallets) represent competition for carrier billing. That is especially the case in emerging markets like sub-Saharan Africa. Large proportions of the population remain “unbanked” and rely on pre-paid, rather than post-paid, mobile subscriptions, which are harder to reconcile with the DCB business case.
Many eWallets are telco- owned (Vodacom’s M-Pesa, Orange Money and Airtel Money, for example) and can be classed as another form of carrier billed payment. But the fastest growth is coming from OEM eWallet providers such as Apple Pay, Google Pay and Samsung Pay, as well as a select number of local players in specific countries or regions, including Mercado Pago in Latin America, GrabPay in South East Asia, Kakao Pay in Korea and Paytm in India.
Separate research confirms that trend. In its report The Future of Instore Retail Payments, Kaleido Intelligence predicts that Apple Pay, Samsung Pay and Google Pay will drive a 377% increase in OEM Pay contactless transactions between 2019 and 2022. By the end of that forecast period, their combined value is expected to exceed US$1tn and account for 11% of all instore proximity transactions conducted via contactless and QR code payment methods. Kaleido also noted a 105% increase in instore contactless card and mobile payment transaction value in 2020, driven primarily by a surge in low-value offline purchases as people switched to paying for their groceries using new technology in the face of pandemic restrictions.
Mobile payment aggregators have now started to add eWallets to platforms that link credit card and online bank accounts into a single app. But Omdia notes that eWallets still lag DCB for availability outside China and present a much more fragmented market landscape that sees large numbers of international and local players competing for customers.
Respond quickly to market and regulatory changes
The last decade has seen carrier billing migrate from being a low-volume and high-margin business to a high-volume and low-margin operation, partly because telcos have been forced to lower their billing rates to meet rapidly changing trends in demand for digital services. Yet that strategy has simultaneously opened up new opportunities in app stores, OTT media, consoles, ticketing, financial products and physical goods.
Despite their falling profit margins, operators DCB revenue is still expected to grow because the expansion of overall transaction value will compensate for their shrinking slice. Omdia calculates that while the operator share of the DCB market was 11% (US$5.6bn) in 2020, that will fall to 8% (US$6.5bn) by 2025. But by reducing the fee they take from DCB merchant transactions, telcos also put themself in a solid position to establish new revenue streams from bundling enablement, marketing, mobile identity and know your customer (KYC) services.
As a primary means of cementing their role in the digital media and services value chain, carrier billing is of substantial strategic importance to telcos. But to fully capitalise on its potential, they must be careful to remain sufficiently agile and flexible in responding to changes in e-commerce regulation and consumer demand as and when required. We are now focussed on building our payments-as-a-managed-service platform for telcos, merchants and stores that offers choice of both direct carrier billing and other payment methods, both conventional ones like cards and alternative ones like ewallets.