Why Japan & South Korea are DCB market leaders

December 26, 2019

Jonathan Kriegel


Analyst estimates place Japan and South Korea in as two of the top three countries for direct carrier billing (DCB) transactions in the world. That is primarily due to the prevalence of a more open attitude towards DCB amongst consumers in both countries, which local telcos and mobile network operators (MNOs) were quick to identify, nurture and exploit.

Certainly, merchants in Japan have proved themselves more willing to advocate DCB as a payment option for a more extended number of years. Credit cards are not the dominant online payment method in Japan, a country with a far more diverse payment landscape than most others. That’s due mainly to its high smartphone adoption and usage rates, especially amongst “millennials” – young people in the 17-25 age range.

Besides, spending limits set by MNOs tend to be significantly higher in Japan compared to Europe and America – typically around US$300 a month and rising to as much as US$1000 a month for select consumers – which inevitably encourages buyers to purchase more goods.

Telcos in South Korea too started to support DCB as early as 2010 through strategic partnerships with mobile payment providers that offered access to virtual goods and content via large networks of participating merchants – including Google, Microsoft and Spotify. Apple App Store and iTunes Store DCB options are also available for customers of specific MNOs in South Korea via SK Telecom, Korea Telecom (KT) and LG(U+), just as they are in Japan though carriers including KDDI, SoftBank and NTT DOCOMO.

Research firm Ovum attributes the comparatively high adoption rates of DCB in Japan to two primary factors, the first of which was integration with Google Play. The analyst company calculates that DCB accounts for 70% of all Google Play purchases in the country. And while it represents a segment of the market that may now be in decline, the historical volume and diversity of the web-based games market (primarily social gaming) where the primary host and billing mechanism is the smartphone was also a significant driver.

The countries exhibiting the most significant rises in DCB growth also tend to be those where the incumbent telcos quickly recognised the benefit of building advanced infrastructure in support of the payment method as opposed to relying on premium SMS solutions. That included adding support for server to server integrations, two-step/dynamic charging and automated refunds for example. Automated processes like seamless merchant onboarding also helped, as did joint marketing campaigns between merchants and telcos deliberately designed to raise consumer awareness around different digital payment options.

Operators in Japan and South Korea with that DCB infrastructure already in place have also had the option to accelerate market expansion by offering a higher percentage of the overall purchase price to merchants, expanding their retailer partner base and opening up new sources of revenue from different segments.

More recently, the DCB market in both countries has received a seismic boost from partnerships with retailers selling physical goods – a trend that sets telcos in both countries in good stead for the future. Ovum recently raised its estimates for the value of the carrier-billed physical goods and services market based on new evidence revealing its precise magnitude in Japan and South Korea. The research company’s Global Carrier-Billing Forecast Report: 2018-2023 estimates the two countries accounted for around $6.6bn and $3.7bn respectively in 2018 with both making up 94% of the segment’s global worth alone.

Online retail giant Amazon introduced DCB to Japanese customers subscribing to either NTT DOCOMO or KDDI mobile services in 2017 for example, allowing them to buy physical goods for the first time (later extended to Amazon Prime and Prime Student members that year).

What is also significant is that telcos and MNOs in both countries were early pioneers in the development and deployment of fourth-generation (4G) mobile data networks that give consumers always-on access to online retail sites from wherever they happen to be. And if history repeats itself, the imminent expansion in the availability of fifth-generation (5G) mobile networks in Japan and South Korea next year will provide a wealth of new opportunities in terms of the larger volume and variety of applications, services and content they will be able to bill for using DCB.

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